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Business activity in India’s services sector rose to a five-month high in August, helped by rising productivity, easing cost pressures that hit a four-year low, and high domestic demand. However, optimism among services firms about next year’s prospects fell to a 13-month low, while it fell to a 15-month low for India’s private sector manufacturers and services players, according to a private survey-based index.
The seasonally adjusted HSBC India Services Business Activity Index, based on responses from over 400 private companies, rose to 60.9 in August from 60.3 in July. A reading above 50 on the seasonally adjusted PMI indicates an expansion in the level of activity.
According to the HSBC India Composite Output Index, overall private sector activity, including manufacturing firms, remained unchanged from July’s level, at 60.7 in August. Growth in services remained slow, driven by a seven-month low pace of growth in factory output.
At the overall level, sales growth was also the slowest since May. Input costs rose at the slowest pace in six months, with both manufacturing and services sectors showing the same pattern, said Pranjul Bhandari, chief India economist at HSBC.
Overall, new services orders grew at the fastest pace since April, although 5% of firms surveyed indicated a decline in order books and the pace of new export business slowed last month to the lowest in six months. Ms. Bhandari said the increase in August was mainly driven by a rise in domestic orders.
Among services sectors, finance and insurance remained the best performing segment in terms of both output and new orders. Consumer services recorded the highest increase in input costs. While service providers indicated a further increase in their operating expenses, the overall rate of inflation remained the lowest since August 2020, amid a rise in food, labour and transport costs.
After reporting the biggest seven-year increase in prices charged to customers in July, most firms resisted fresh price hikes in August, with less than 4% of survey participants increasing their average selling price from July levels. These increases were mainly made by transport, information and communication services firms.
Services companies continued to expand payrolls, but the pace of hiring fell to a four-month low in August, while outstanding business volume grew at the weakest rate since February.
“While 21% of service providers expect output to increase over the next 12 months (just 1% expect a decline), this was down from nearly 30% in July,” S&P Global, which compiles the index, said in a note, stressing that some companies were concerned about competitive pressures.
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