India's Services PMI accelerated slightly in August, but persistently subdued new business kept the sector's overall activity near its weakest level in more than four years, a survey showed, even as firms ramped up hiring at the fastest pace in over a year.

Key Highlights

• India's Services PMI rose to 54.1 in August, remaining near its weakest level in over four years.
• Services firms hired at the fastest pace in 15 months, even as new business growth stayed subdued.

HSBC's India Services Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 54.1 in August from July's 53.3, but came in slightly lower than a preliminary estimate of 54.5. A reading above 50.0 indicates an increase in activity, but while the headline was slightly lower than the long-run average of 54.5, it was also the second-lowest since March 2022. New business - the survey's primary demand indicator - grew at the second-slowest pace in over four years.

International Demand Offers Limited Support

International demand provided only limited support during the month, with new export orders expanding at a broadly similar rate to July. Companies reported gains from clients in markets including Australia, Brazil, Canada, Japan, Malaysia, Singapore, Sri Lanka and the UAE, even as the overall increase in export sales remained below its average over the past year. Some firms also reported subdued bookings, intense competition, weaker client interest in selected services, and reduced transport operations.

Hiring Hits 15-Month High

On the labour side, services companies recruited the most in 15 months, indicating ongoing optimism in the area's short-term prospects. Some 11% said that their staffing had increased, which was attributed to support for customer service, sales and digital operations. Job creation was termed as "marked" and highest in 15 months.

Pranjul Bhandari, Chief India Economist at HSBC, said India's services PMI expanded faster in August, supported by stronger output and new business, although the overall pace remained among the weakest seen in over four years, with some firms citing subdued bookings, competition and reduced transport operations. She added that employment increased at a marked rate, with job creation reaching a 15-month high, while price pressures picked up only modestly — input cost inflation edged up slightly, and prices charged rose at the fastest rate since March as firms passed on higher operating costs.

Also Read: India's Services PMI Falls to 4-Year Low in July at 53.3

Business Confidence Remains Below Long-Run Average

Business confidence continued to be lower than the long-run average but was somewhat optimistically expecting business conditions and demand to improve. Business was also excellent, but down slightly for the second consecutive month, as firms attributed the drop to an easing in new orders and the speedy completion of new orders.

Input-cost inflation edged up only slightly in August and remained moderate by historical standards, with companies reporting higher spending on digital platforms, electricity, inputs, labour, marketing and regulatory requirements. Prices charged for Indian services rose at the fastest pace since March as firms passed higher operating costs on to clients.

Composite PMI Holds Steady as Services Offset Manufacturing Slowdown

However, an upward trend in services activity has counterbalanced a downward slump in manufacturing PMI to result in unchanged overall private sector growth in August. The HSBC India Composite PMI Output Index remained unchanged at 54.3 in August, marking the joint slowest growth in four-and-a-half years, and below the historical trend. The growth in services had to be more robust to keep the composite index from falling, with manufacturing growth declining to a 5-year low in the month.

Total sales increased at a faster pace in the past month but was the second smallest since February 2022, with a decrease in sales by producers of goods offset by an increase by service producers. Job growth was the strongest in 14 months, after manufacturing had shed workers, as services gained more. Input-cost inflation slowed to a seven-month low at the composite level, and price inflation of charges picked up to the highest level since April.