Services Sector Activity in India Hits 1-Year Low on Slower Order Growth and Output: PMI Report
India’s services sector experienced a decline in growth in November, reaching a one-year low due to slower expansions in new work intakes and output. Despite receding price pressures, the seasonally adjusted S&P Global India Services Business Activity Index dropped from 58.4 in October to 56.9 in November, reflecting a month-on-month decline. However, the rate of expansion remained stronger than the long-run average.
Weaker Growth Momentum but Robust Demand for Services
India’s service sector has experienced a further loss in growth momentum during the third fiscal quarter. However, there is still a positive outlook due to the robust demand for services fueling new business intakes and output. Despite optimism fading due to rising inflation expectations, the current expansion rates remain healthy when considering their long-run averages. This indicates that the outlook for business activity remains bright, according to Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.
Decrease in Inflation Rates
Both input cost and output charge inflation rates slipped to eight-month lows, leading to fewer companies raising their fees. This decline in inflation rates may provide a boost in demand as 2023 comes to a close.
Caution in Hiring amidst Stable Business Levels
Services companies curbed recruitment to some extent, as there were broadly stable levels of outstanding business among them. Given the stable backlog levels, services firms became more cautious when it comes to hiring. While net employment still rose in November, the rate of job creation was marginal and the slowest in seven months.
Positive Outlook but Diminished Confidence due to Rising Inflation Expectations
Despite the challenges, businesses maintained a positive outlook for activity in the coming 12 months. However, confidence has somewhat faded due to rising inflation expectations.
Weakest Rise in Private Sector Activity in a Year
The S&P Global India Composite PMI Output Index fell from 58.4 in October to 57.4 in November, indicating the weakest rise in private sector activity across India in a year. Manufacturers outperformed service providers with a quicker rate of growth, while services saw the slowest upturn in one year. Factory orders rose to a greater extent, but demand for services somewhat cooled. At the composite level, sales increased at the weakest rate since November 2022.
Monetary Policy Review and Expectations
The Reserve Bank of India is likely to maintain the status quo on the short-term interest rate in its upcoming monetary policy review. RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) will commence its three-day deliberations on December 6, with the decision of the six-member MPC set to be unveiled on December 8.
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