India's services sector activity hits 5-month high in August on uptick in new work orders

India's services sector activity growth touched a five-month high in August on a stronger rise in new work orders, while payroll numbers rose solidly as companies remained upbeat regarding the economic outlook, a monthly survey said on Wednesday. The seasonally adjusted HSBC India Services Business Activity Index rose from 60.3 in July to 60.9 in August, registering the fastest expansion since March and was largely supported by productivity gains and positive demand trends.

In the Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March. This growth was largely fuelled by an increase in new orders, particularly domestic orders," said Pranjul Bhandari, Chief India Economist at HSBC.

On the price front, input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern. Consequently, output price inflation receded in August.

"The overall rate of charge inflation across India's service economy was moderate. The rise was also slower than that seen in July," the survey noted. However, the outlook for the Indian private sector over the next year has moderated, reaching its lowest level in 15 months due to competitive pressure, although the Future Output Index remained above the long-term average.

According to the survey, employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July. "Confidence in the year-ahead outlook for business activity, coupled with rising backlogs and sustained growth of new business continued to support job creation across the service sector," the survey noted.

Meanwhile, the HSBC India Composite Output Index stood at 60.7 in August, unchanged from its July reading. The Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors, according to official GDP data.

The rate of output growth remained unchanged as acceleration in services negated the slowdown in manufacturing. Service providers signalled the strongest increase in business activity since March, while goods producers posted the weakest rise in production for seven months.

August survey data further showed that prices charged for Indian goods and services rose to a lesser extent than in July. Both the manufacturing companies and their services counterparts saw cost pressures receding in August. The aggregate rate of inflation retreated to a six-month low, the survey noted.