India's services sector demonstrated stronger momentum in August with the HSBC India Services PMI Business Activity Index rising to 54.1 from 53.3 in July. According to the latest HSBC survey, this expansion was supported by stronger output and new business, though the pace remained among the weakest seen in over four years. The reading was the second-weakest since March 2022 and remained marginally below the long-run average of 54.5. As reported by HSBC, some firms cited subdued bookings, competition and reduced transport operations as factors constraining growth. Service providers reported that demand conditions remained supportive and new business inflows strengthened during the month, indicating underlying resilience despite challenging conditions. The finalized August Services PMI registered at 54.1, down from the flash estimate of 54.5 but up from July's final of 53.3, showing a slight cooling from initial optimism. The headline figure has remained in the expansion zone for the 61st consecutive month, indicating sustained sectoral growth despite challenging conditions.
Services companies achieved their strongest job creation pace in 15 months during August, with around 11% of survey respondents reporting increased staffing levels. According to the HSBC survey, companies linked this rise to efforts to support customer service, sales and digital operations. The employment expansion was a key highlight of the services sector performance, indicating robust demand for skilled services personnel across various sectors. Aggregate employment rose at the fastest pace in 14 months, demonstrating the sector's commitment to workforce expansion and suggesting some confidence remains despite subdued demand conditions. Job creation in the services sector offset the decline in manufacturing employment, which contracted for the first time in two-and-a-half years, providing crucial support to overall employment growth. The HSBC data also showed aggregate employment rising at its fastest pace in 14 months, with robust hiring in services more than offsetting a reduction in manufacturing employment. The finalized August Services PMI of 54.1 continues to act as a primary cushion for the broader economy, mitigating a five-year low in manufacturing growth and supporting overall economic stability.
New business growth strengthened in August, supported by stronger customer demand and marketing initiatives, though the rate of expansion remained the second-slowest in nearly four-and-a-half years. As reported by HSBC, some firms reported challenging market conditions and weaker client interest in selected services. International demand continued to support new business, with new export orders increasing at a solid pace that was broadly similar to July. Survey respondents reported higher demand from clients in Australia, Brazil, Canada, Japan, Malaysia, Singapore, Sri Lanka and the UAE, though the increase in export sales remained below the average recorded over the past year. Business confidence in the services space has seen moderate support from overseas bookings, notably from the UAE, UK, and US, providing some stability amid competitive pressures. Aggregate new order volumes also increased at a faster pace, indicating improving demand conditions across the sector. The recovery in the services sector contrasted with the manufacturing sector, where the PMI fell to a five-year low of 52.8 in August, highlighting the divergent performance across sectors.
Input cost inflation edged up only slightly in August and remained moderate by historical standards, with firms reporting higher expenditure on digital platforms, electricity, inputs, labour, marketing and regulatory requirements. According to HSBC, prices charged by services companies rose at the fastest pace since March as firms passed on higher operating costs to customers. This represented a modest increase in price pressures compared to previous months, though charge inflation accelerated to its strongest since April, indicating rising pricing power across the sector. Cost pressures ticked up modestly, with businesses passing on higher operating expenses to clients. Composite input cost inflation eased to a seven-month low, providing some relief to businesses facing cost pressures. Pass-through inflation remains a key concern, as selling charges rising at a faster pace could suppress domestic demand and impact overall economic momentum. Employment increased at a marked rate, with job creation reaching a 15-month high, while price pressures picked up only modestly, indicating a balanced approach to cost management.
The HSBC India Composite PMI Output Index remained unchanged at 54.3 in August, combining manufacturing and services activity. As reported by HSBC, faster services growth offset a slowdown in manufacturing, leaving the overall pace of private-sector expansion unchanged from July. Finalized August numbers reveal a slight cooling from the preliminary flash estimates, suggesting that initial optimism was moderately overstated. The flat composite reading highlights contrasting sector performances, as a cooling manufacturing segment offset services gains. Manufacturing PMI dropped to 52.8 on September 1, pointing to a five-year low in factory growth momentum, while services expansion continues to provide stability. Business confidence about activity over the next 12 months was broadly unchanged from July and remained below its long-run average for a second month. The downward revision in final PMI figures indicates that growth momentum remains normalized and balanced, providing the Reserve Bank of India with more headroom to consider a neutral monetary stance or evaluate rate cuts towards the end of the calendar year to support economic momentum.
