Services activity revives in Oct as strong demand fuels growth

Growth in India's services sector picked up in October, boosted by strong demand and rising sales, according to a private survey released on Wednesday.

The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, recovered to 58.5 at the start of the third quarter of the current financial year, up from a 10-month low of 57.7 in September. It was, however, lower than 60.8 recorded in April.

"During October, the Indian services sector experienced strong expansions in output and consumer demand, as well as job creation, which achieved a 26-month high," said Pranjul Bhandari, chief India economist at HSBC.


This growth was supported by strong sales pipelines and favourable demand conditions. "The rate of sales growth was historically elevated and accelerated from September's 10-month low," according to the survey. Export sales benefited from increased demand from Africa, Asia, the Americas, the Middle East and the UK.

Services sector employment also saw an uptick, with firms hiring full and part-time workers in response to sustained growth in new business, according to anecdotal evidence, the survey noted.

Cost inflation also rose
Input price inflation reached a three-month high. "Although input price inflation is accelerating from higher food and wage costs, the general inflation trajectory remains below the long-run average," said Bhandari.

Out of the four sub-sectors monitored, consumer services recorded the highest cost pressures, according to the survey.

Despite a slight dip from September, business sentiment remained positive in October. One quarter of the survey panel expected output to rise over the coming year, citing healthy demand trends, marketing efforts and new client enquiries. On the other hand, 74% of firms expected business activity to remain unchanged at current levels.

The manufacturing sector also rebounded in October to 57.5 from an eight-month low of 56.5 in September, according to data released earlier this week. With both manufacturing and services recording a strong growth in October, the HSBC India Composite Output Index increased to 59.1, "a level consistent with a sharp rate of expansion", from a 10-month low of 58.3 in September, according to the survey.

Expansion in new business inflows across both sectors contributed to higher sales and employment at the composite level.