Business activity in India’s services sector accelerated at a five-month high pace in August, aided by productivity gains, a pullback in cost pressures which eased to a four-year low, and higher domestic demand. However, optimism among services firms about next year’s prospects slumped to a 13-month low, while it slipped to a 15-month low for India’s private sector manufacturers and services players on the whole, as per a private survey-based index. 

The seasonally adjusted HSBC India Services Business Activity Index, based on responses from 400-odd private players, rose to 60.9 in August from 60.3 in July. A reading of over 50 on the seasonally adjusted PMI indicates an expansion in activity levels.

Overall private sector activity, factoring in manufacturing firms, was unchanged from July levels as per the HSBC India Composite Output Index that had a reading of 60.7 in August. The uptick in Services was tempered by a seven-month low pace of growth in factories’ output.

Sales growth was also the weakest since May at a composite level. Input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern, said Pranjul Bhandari, chief India economist at HSBC. 

Overall new services orders grew at the strongest pace since April, although 5% of the surveyed firms indicated a deterioration in order books and fresh export business slowed down last month to a pace that was the weakest in six months. The growth in August was largely fuelled by an increase in domestic orders, Ms. Bhandari noted.

Among the services sectors, Finance & Insurance was the best-performing segment both in terms of output and new orders. Consumer services reported the highest uptick in input costs. While service providers signalled a further increase in their operating expenses, amid greater food, labour and transportation costs, the overall rate of inflation was the weakest since August 2020.

After reporting a seven-year peak surge in prices charged to customers in July, most firms resisted fresh price hikes in August, with less than 4% of survey participants raising their average selling price over July levels. These hikes were primarily led by transport, information and communication services firms.

Services firms continued to expand payrolls, but the hiring pace dropped to a four-month low in August, while Outstanding business volumes rose at the weakest rate since February.

“Whereas 21% of service providers foresee an increase in output over the course of the coming 12 months [only 1% expect a fall], compared with roughly 30% in July,” S&P Global, which compiles the index, said in a note, stressing that some firms were concerned about competitive pressures.