India's services sector peaks in December with three-month high on robust demand

Indian economy in focus: India's services sector concluded 2023 on a positive note, experiencing its most robust growth in three months in December, as per a private survey by S&P Global on the HSBC India Services Purchasing Managers' Index.

The index surged to 59.0 in December from the previous month's one-year low of 56.9, marking the 29th consecutive month of expansion and well surpassing the 50-mark that separates growth from contraction.

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The boost in business activity, particularly driven by a three-month-high new orders index, played a pivotal role in elevating the overall index. 

Pranjul Bhandari, Chief India Economist at HSBC, highlighted the positive momentum in India's services sector at the end of the year, citing favourable economic conditions and optimistic demand.

Despite the overall positive outlook, the international demand for services experienced its slowest growth in six months. 

Nevertheless, services firms expressed confidence in the continued strength of the sector in the upcoming year, as indicated by the uptick in the future activity sub-index, a crucial measure of business optimism.

However, the optimistic sentiment did not translate into robust job creation. 

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Although the pace of hiring increased in December compared to November, it remained subdued. On the cost front, businesses found some relief as operating costs rose at the slowest pace since August 2020. 

Despite this, companies passed on the additional costs to clients more rapidly, resulting in the first instance in over three years where the rate of output price inflation exceeded that of input costs, signalling improved corporate margins.

In terms of inflation, the latest Reuters survey indicated that it was expected to remain within the Reserve Bank of India's target range of 2-6 per cent for the current fiscal year and the next. 

The survey also suggested that the RBI might reduce interest rates in the third quarter of the year, aligning with the anticipated rate cut by the US Federal Reserve during the same period.

While the manufacturing sector index for December dipped to 54.9, the strong performance of the services sector propelled the overall HSBC India Composite PMI Output Index to a three-month high of 58.5, showcasing the resilience and vitality of India's economic landscape.

(With Reuters Inputs)