India's Services Purchasing Managers Index up in September: HSBC

Mumbai: India's services sector, which contributes the most to the country's GDP, continued to accelerate in September, led by a rise in new business and a pick up in employment. However, business sentiment in the country eased a bit during the month, possibly due to the continued rise in inflation pressures, a release from global financial services major HSBC, based on a monthly survey of purchasing managers, said.

"Both input and output prices accelerated in September on the back of higher fuel and wage costs. A steady rise in growth and inflation in the largest sector of the economy should make the RBI more cautious about lowering policy rates too quickly," the note from HSBC said. According to HSBC's India PMI, service sector activity picked up pace in September with a score of 55.8 points against 55.0 in August. New business flows also increased in September, at 56.7 points compared to 55.9 in August, but business expectations for the coming 12 months fell notably, to 67.2 points in September from 74.0 in August. The composite index for manufacturing and services rose to 55 from 54.3 in August on the back of a pick up in services, the note said. The survey also showed that both input prices (54.3 compared to 53.5 in August) and prices charged (54 compared to 53.3 in August) rose at a faster pace. "Panelists said higher fuel prices, labour costs and taxes drove inflation up," it said.

What these finds imply, according to HSBC, are services continue to trend up, visibly diverging from manufacturing where growth is restrained by the lagged impact of monetary policy, weak global economic backdrop, and slow progress on structural reforms in recent years. "The rise in services is likely led by domestic demand given the weak global economic backdrop. A buoyant rural sector could be adding to the resilience of the services sector," the note added. Looking ahead, HSBC believes growth in services should continue to remain supported by domestic demand and the positive sentiment effects from the recent improvement in policy reform momentum. "However, elevated inflation will dampen the growth in spending power," it said.