India's services growth eases in September but optimism rises to 6-month high: HSBC PMI

At 60.9 in September, the seasonally adjusted HSBC India Services PMI Business Activity Index, based on a single question asking how the level of business activity compares with the situation the month before, was well above the neutral mark of 50.0 to signal another substantial upturn in output. Falling from 62.9 in August, however, the latest figure showed a loss of growth momentum, according to the latest data.

This signals operating conditions across India's service economy remained favourable in September, with healthy demand trends underpinning further growth of total new orders, exports, employment and business activity. In all four cases, however, rates of expansion eased since August. "Business activity in India’s services sector eased in September from the recent high August level. Most trackers moderated, but nothing in the survey suggested there is a big loss in growth momentum in services. Instead, the Future Activity Index rose to its highest level since March, indicating strengthening optimism among services companies about business prospects," Pranjul Bhandari, Chief India Economist at HSBC, said.

Anecdotal evidence showed that demand buoyancy and new business gains, alongside tech investment and favourable public policies, supported the rise in output. "Barriers to growth featuring in panel member reports included competitive conditions and cost-control measures," the report says.

Similarly, new order intakes rose at a sharp pace that was nevertheless softer than that registered in August. Underlying data showed that part of the slowdown reflected softer improvements in international demand for Indian services. External sales still rose in September, but did so to the least extent since March.

Companies identified the supply of services at lower prices elsewhere as the main factor behind the slowdown in the growth of export orders. Indian services companies reported a further increase in their expenses at the end of the second fiscal quarter. According to them, outlays on labour and materials have risen since August. The overall rate of inflation was solid, but eased since the previous month and was below its long-run average. Prices charged for the provision of Indian services likewise increased at a weaker rate in September. The pace of inflation was modest, the slowest since March and broadly in line with the long-run series average.

Elsewhere, the latest results showed a general lack of pressure on the capacity of services firms, as outstanding business volumes rose at a marginal pace that was the weakest in a year. Concurrently, job creation slowed during September. "Employment rose at a modest pace, as fewer than 5% of monitored companies reported hiring growth. Companies' assessments of growth prospects improved in September, with the overall level of positive sentiment reaching a six-month high."

Survey participants identified several tailwinds to the year-ahead outlook for activity, including advertising, efficiency gains, plans to price competitively and tax cuts, the report says.

Private sector growth eases

India's private sector continued to experience robust growth, but there were softer increases in new orders, international sales, business activity and employment during September, according to the data. The HSBC India Composite PMI Output Index slipped from 63.2 in August to 61.0, indicating the weakest rate of expansion since June.

The figure nevertheless remained comfortably above its long-run average and the neutral mark of 50.0. In addition to a broad-based slowdown in growth of output across the manufacturing and service sectors, there were softer increases in new orders across the two segments. At the composite level, total sales rose at the softest pace in three months. Inflation trends were mixed, with faster increases in expenses and selling prices at manufacturers contrasting with slower rises in the service economy. Across the private sector, costs and charges rose at the slowest rates in two and three months, respectively.