November Services activity cools a fraction, but cost pressures compel fastest price hikes in 12 years

Services sector growth in India’s private sector receded a tad in November, but new international orders expanded at the fastest pace in three months and players reported ‘an unprecedented’ uptick in new hires of permanent and temporary staff, as per a private gauge based on a survey of 400-odd firms.

The surveyed firms also reported an intensification of price pressures as input costs rose to the greatest extent in 15 months, led by higher food and labour costs, while firms ramped up selling prices at the fastest rate in close to 12 years. Some firms suggested that the price hikes they implemented were supported by rosy demand.

The HSBC India Services Business Activity Index in November came in at 58.4, marginally lower than the 58.5 reading in October. A reading of over 50 on the index, which is based on a single question on how business activity levels compared to the previous month, indicates an expansion.

While growth of new orders and output moderated a bit from October, firms reported that new export orders increased at a solid rate, though this was still well below the expansions seen around the middle of this year. Firms that reported improved order books cited gains from clients in Asia, Europe, Latin America and the U.S.

“During November, services sector employment notably grew at the fastest pace ever recorded since this survey began in 2005. The hiring surge reflected the sector’s improving business confidence, growing new orders, and vigorous international demand,” said Pranjul Bhandari, chief India economist at HSBC, while noting the sharp surge in input costs and output charges.

November’s PMI survey also signalled a pick-up in capacity pressures among service providers as work pending completion increased at the quickest pace in six months. Service providers were also more confident regarding the year-ahead outlook, with measured levels the highest since May.

Overall, private sector services and manufacturing firms’ saw a growth slowdown in November with the HSBC India Composite Output Index down to 58.6 from 59.1 in October. Cost pressures were higher for services firms than goods producers.