India Services PMI Rises to Four-Month High of 55.8 in October on Domestic Demand Rebound

Activity across India's services sector gained momentum at the start of the third quarter of the fiscal year, driven by strong domestic client appetite and promotional initiatives. The seasonally adjusted HSBC India Services Purchasing Managers' Index (PMI) Business Activity Index rose to 55.8 in October, up from 55.2 recorded in September.

Although the final reading came in slightly below the flash estimate of 56.2, it marked the strongest pace of expansion in the services economy since June. A figure above the 50.0 threshold separates expansion from contraction.

Alongside the services pickup, the HSBC India Composite PMI Output Index—which aggregates output across manufacturing and services—increased to 56.2 in October from 55.9 in September, signalling an overall acceleration in Indian private sector economic activity.

Domestic Demand Drives New Orders

The survey showed that the uptick was anchored by domestic consumption. New business orders grew at their fastest pace in four months, supported by customer acquisition, enhanced marketing, and healthy pipeline inquiries.

In contrast, external demand remained sluggish. New export orders grew at the weakest pace since February 2023, reflecting uneven global macro conditions that curtailed cross-border deal closures.

Sectoral Performance Highlights:

• Finance & Insurance: Led the expansion across the services sector, posting the strongest gains in both output and new business intakes.
• Real Estate & Business Services: Remained the weakest performer among the four monitored broad service categories, expanding at the slowest pace.

Inflation Eases to Multi-Year Lows

A key positive for corporate profit margins was a sharp deceleration in operating expenses. Input costs increased at their weakest rate in more than six years, logging the lowest inflation rate since August 2020. While service providers continued to report higher expenses for labour, electricity, freight, and raw materials, the overall pressure softened substantially.

Reflecting this subdued cost environment, selling prices charged to clients increased at their slowest rate in four months, with less than 3% of monitored companies lifting their charges.

Hiring Stalls Amid Cautious Sentiment

Despite the bounce in order books, Indian service providers took a measured approach to workforce expansion. Employment growth cooled to a fractional rate, matching June's levels as the slowest recruitment pace in 10 months. Backlogs of work declined for the third time in four months, indicating that current operational capacity remained adequate to handle incoming volume.

Overall business confidence slipped from September levels, holding below the long-run series average as firms weighed cost pressures and competitive intensity against long-term growth prospects.

Commenting on the survey findings, Pranjul Bhandari, Chief India Economist at HSBC, noted that India's services PMI picked up to a four-month high in October as underlying business conditions improved cautiously.

For market participants and the Reserve Bank of India (RBI), the combination of accelerating services activity and six-year-low input price growth provides comfort on domestic growth fundamentals while tempering near-term inflation anxieties.