India's services PMI surges to five-month peak in August on resilient demand, easing prices

India's services sector activity surged to a five-month high in August due to resilient demand and easing inflationary pressures, the HSBC final India Services Purchasing Managers' Index (PMI), compiled by S&P Global and released on September 4, showed.

For August, PMI numbers rose to 60.9 in August from 60.3 in July, surpassing the preliminary estimate of 60.4.

The PMI reading has remained above the 50-mark separating growth from contraction since August 2021. The recent figures also surpassed its long-term average, reaching the highest level since March. The rise was mainly driven by an increase in new orders, particularly domestic ones.


"This growth was largely fuelled by an increase in new orders, particularly domestic orders," said Pranjul Bhandari, chief India economist at HSBC.

The new business sub-index saw a slight increase compared to July, hitting a four-month high and exceeding historical averages. While international demand remained solid, its growth pace declined sharply, reaching a six-month low compared to July.

Even though business confidence stayed positive, it dropped to its lowest level in more than a year. Nevertheless, firms were optimistic about the resilience in demand and expected better growth in the coming year.

Hiring in the services sector continued at a steady pace, despite slowing to its weakest since April. Cost pressures rose moderately due to increased expenses for food, labor, and transportation. However, the rate at which service providers faced these cost increases slowed to a four-year low.

"On a positive note, 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," Bhandari added.

With easing inflationary pressures, firms passed on costs to clients at a much milder rate than in July. Data from the previous month showed that inflation in India decreased to a near five-year low of 3.54% in July, largely due to a high-base effect that suggested the slowdown was temporary.

Inflation is expected to average 4.2% this quarter and 4.6% in the next, according to a Reuters poll. While a manufacturing PMI released on Monday dipped to a three-month low of 57.5 in August, the improvement in services activity kept the overall Composite PMI unchanged from July's 60.7.



With inputs from Reuters and other agencies