Services sector hits six-month high in January amid strong demand

The country's services sector showcased robust growth, hitting a six-month high in January, according to the final reading of the HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global.

The index surged to 61.8 last month, surpassing December's 59.0 and exceeding the preliminary estimate of 61.2. This marks the 30th consecutive month that the index has stayed above the 50-mark, indicating expansion.

The report suggests that India is poised to maintain its status as the fastest-growing major economy, alleviating pressure on the government and allowing a focus on fiscal consolidation in the coming year. Notably, the strong performance in the services sector is a key contributor to this optimistic outlook.

"New business expanded at a faster pace, and managers' expectations for future activity were strong. The new export business index accelerated, signalling that India's services exports remained robust," highlighted Ines Lam, an economist at HSBC.

The sub-index for new business, in expansionary territory for two-and-a-half years, indicated that demand experienced its quickest pace since July. Additionally, exports reached a three-month high, contributing to the buoyant sentiment at the beginning of the final quarter of fiscal year 2023-24. This optimism translated into the highest confidence in year-ahead activity since September, prompting firms to continue hiring.

While operating costs rose at the fastest pace since August, the report indicated that prices charged increased at the slowest pace in nearly a year. This moderation in inflation aligns with the overall economic landscape, as inflation in the country reached a four-month high in December but remained above the Reserve Bank of India's medium-term target of 4 per cent.

With manufacturing activity also expanding at its fastest pace in four months, the composite HSBC India PMI Output Index, covering both manufacturing and services, reached a six-month high of 61.2 in January. This outperformed December's 58.5 and surpassed the flash estimate of 61.0.

As the country showcases resilience and robust growth, experts anticipate the central bank to maintain steady interest rates, at least in the short term, aligning with the strong economic indicators and inflationary trends. The positive momentum in both manufacturing and services sectors sets a promising tone for India's economic trajectory in the coming months.

(With Reuters inputs)