November Services PMI hits 3-month high of 56.4 on strong demand

The purchasing managers’ index for the services sector in India hit a three-month high in November at 56.4, led by new business inflows, expansion in output and job creation, according to the data released by S&P Global on Monday. This is the fastest increase in the services sector PMI since August, when it stood at 57.2. The services sector PMI for October stood at 55.1. 

A reading above 50 in the PMI indicates an overall increase compared to the previous month and a reading below 50 indicates an overall decrease. The indices are seasonally adjusted.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said, "Indian service providers continued to reap the benefits of strong domestic demand, with PMI data for the penultimate month of 2022 showing faster increases in new business and output. Moreover, expectations of demand buoyancy in the medium-term promoted further job creation.”

According to the report, private sector activity and new order expansion in the country witnessed a surge for the 16th consecutive month in November. Moreover, domestic sales surged for the 16th month at the strongest pace since August, boosted by favourable demand and fruitful advertising. The rate of production across the private sector rose at the fastest pace in three months, owing to an acceleration in the service economy. The month of November also witnessed the first upturn in new business from abroad since the onset of COVID-19 in early 2020. However, the overall rate of expansion was mild.

Moreover, as per the report, services firms recorded a much stronger increase in input costs than their manufacturing counterparts, with inflation among the latter easing to a joint 28-month low. However, the latest rise was the weakest in two years. 

Meanwhile, the overall rate of inflation continues to be above its long-run average, owing to greater transportation costs, higher energy prices, and soaring prices of food, packaging, paper, plastic and electrical products. For the month of October, the Consumer Price Index (CPI) based retail inflation fell to a three-month low of 6.77% in October, down from 7.41% in September 2022. However, it continued to remain above the Reserve Bank of India’s (RBI’s) tolerance level of 6% for the 10th consecutive month. 

"Whilst, on the whole, the latest results are encouraging, the trend for inflation is somewhat concerning. Strong demand for services again boosted firms' pricing power, with more companies transferring cost increases to their customers. The overall upturn in input costs was sharp and little-changed from October, while output charges rose at the quickest rate in over five years. Evidence of stubborn inflation may prompt further hikes to the policy rate at a time when global economic challenges could negatively impact on India's growth,” De Lima added. 

Last week, the rating agency slashed the country’s gross domestic product (GDP) forecast by 30 basis points (bps) to 7%. Earlier the rating agency had projected the country’s economic growth to be at 7.3% for the current fiscal year. For FY24, the rating agency has pegged the country’s economic growth at 6%.