India's services sector activity moderates in Aug; exports expand at series record pace

New Delhi: India's services sector activity eased in August but growth rates for new orders remain elevated, as services firms indicated the sharpest upturn in new export business which acted as a catalyst for firms to expand their workforces as well as output, a monthly survey said on Tuesday.

Despite falling from 62.3 in July to 60.1 in August, the seasonally adjusted S&P Global India Services PMI Business Activity Index indicated one of the strongest increases in output seen since mid-2010.

For the 25th straight month, the headline figure was above the neutral 50 threshold. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

"Indian services companies achieved a remarkable milestone in August, as they welcomed a series record surge in new export business. Several regions contributed to the upturn, including Asia Pacific, Europe, North America and the Middle East," Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said.

Lima further noted that this spike in international demand supported one of the best sales performances recorded over the past 13 years, and acted as a catalyst for firms to expand their workforces as well as output.

"Demand strength also fostered a heightened sense of optimism regarding the outlook, boding well for economic growth prospects," Lima said.

On August 10, the Reserve Bank of India (RBI) left its key interest rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher.

The next meeting of the RBI Monetary Policy Committee (MPC) is scheduled for October 4-6.

On the prices front, buoyant demand for services meanwhile aided a further upward revision to selling prices. The rate of charge inflation quickened to the joint-fastest in over six years, while input costs rose to a lesser extent.

"... Favourable demand trends also led to the joint-fastest increase in prices charged for Indian services in over six years, which may prompt attention from policymakers and potentially delay cuts to the benchmark repo rate," Lima added.

On the jobs front, hiring activity across India's service economy continued to expand. The rate of job creation was moderate, but the strongest seen since last November.

Going ahead, monitored companies firmly believed that output would remain on an upward growth path over the course of the coming 12 months.

Advertising, demand strength, plans to price competitively and a healthy number of client enquiries all boosted optimism in August.

Meanwhile, there was a mild slowdown in the growth of private sector activity across India during August.

The S&P Global India Composite PMI Output Index -- which measures combined services and manufacturing output -- fell from 61.9 in July to 60.9 in August. Despite the fall, the S&P Global India Composite PMI Output Index was indicative of a sharp rate of expansion that was among the strongest in over 12 years, the survey said.

The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in December 2005.