Expectations regarding future activity at service providers remained positive in August
Adjusted for seasonal influences, the headline HSBC India Services Business Activity Index posted 50.6 in August, down from 52.2 in July. The latest reading highlighted a fourth consecutive monthly expansion in service sector output, and was consistent with a modest rate of growth. Sector data indicated that growth of activity was broad-based, as only Hotels & Restaurants companies reported a reduction. The fastest increase was at Post & Telecommunications firms.The latest PMI data highlighted a fourth successive monthly rise in private sector activity in India as the HSBC Composite Output Index stood at 51.6 in August down from 53.0 in July. While the latest figure indicated a slowdown in output growth across the private sector, it remained consistent with a moderate expansion in activity. Output growth weakened from July at both services and manufacturing companies, although manufacturing production increased at the second-quickest pace since February 2013.
Indian services firms registered a fourth successive monthly rise in new orders in August, although the pace of expansion slowed from July. Panel members attributed improvements in new business to stronger demand. Incoming new work rose solidly across the private sector as a whole, with the sharper expansion recorded in the manufacturing industry.
Workforce numbers in the Indian service sector were unchanged in August, as the vast majority of survey participants signalled no change in employment. Overall, staffing levels in the private sector remained broadly stable, as has been the case for the past five months.
Backlogs of work held by Indian services companies continued to grow in August, extending the current sequence of accumulation to six months. However, the rate of increase was modest overall. While growth of outstanding business accelerated at manufacturers, backlogs across the private sector expanded at the slowest pace in the current period of accumulation.
Input prices faced by Indian service sector firms increased in August, although the rate of cost inflation eased to the weakest since July 2013. Survey respondents suggested that higher input costs centred around rising oil prices. Private sector companies across the economy as a whole noted a slowdown in cost pressures from the previous month.
Similarly, the rate of charge inflation recorded at services companies in August was muted in the context of historical data. Slower charge inflation was recorded throughout the private sector, as output prices increased at the weakest pace since May 2013.
Expectations regarding future activity at service providers remained positive in August, although the index dropped to its lowest level in 11 months. Surveyed firms justified their optimism by referring to anticipated rises in future demand and the planned introduction of marketing initiatives.
Commenting on the India Services PMI, Frederic Neumann, Co-Head of Asian Economic Research at HSBC said, "Growth in service sector activity slowed in August. Moreover, the improvement in new business flows and business optimism moderated. Services activity is once again turning down following a swift post-election uptick, suggesting that an improvement in reform momentum is needed to lift sentiment in the sector. On the positive side, weaker activity has softened inflation indicators within the survey."
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