India's Services Index jumps to 58.5 in October as employment grows the fastest in 26 months

India's services sector showed robust expansion in October, per the HSBC India Services PMI (Purchasing Managers' Index), which rose to 58.5 last month, up from September's ten-month low of 57.7. October's figures managed to exceed even the long-run PMI average of 54.1, largely on the back of a strong sales pipeline and elevated demand.

Employment, or job creation in this sector accelerated to its fastest growth rate in 26 months. Anticipating solid, sustained demand in the near term, firms added new employees at the most rapid pace in over 2 years. October also saw input costs rise at their fastest pace in 3 months, indicating renewed demand and economic activity in the country. The ISM Services PMI, an indicator of the economic health of the US, also exceeded expectations, reaching 56.0 compared to the forecasted 53.8, suggesting strong growth within the services sector.

"During October, the Indian services sector experienced strong expansions in output and consumer demand, as well as job creation, which achieved a 26-month high," said Pranjul Bhandari, Chief India Economist at HSBC.

The sector saw increased business activity across multiple fronts, with export sales showing significant growth and companies reporting stronger demand from international markets including Africa, Asia, the Americas, the Middle East, and the UK.

However, industry experts remain cautiously optimistic about the sector's prospects. Suman Chowdhury, Chief Economist at Acuité Ratings & Research, noted that while the October recovery is promising, several factors warrant careful monitoring.

“The recovery in the PMI indices in October 2024 is promising for the second half of the fiscal after the dip in several high-frequency indicators in September 2024. Industrial and service activity has expectedly received a boost from the anticipated spike in consumption demand in Q3 FY25, driven by the festivities and the marriage season," she said.

Chowdhury added that it will be crucial to monitor the sustainability of these PMI indices at these elevated levels, given the reported weakness in urban demand in Q2 as flagged by FMCG companies. She also noted that potential increases in wholesale and core retail inflation, combined with higher input costs and wage pressures, could delay expected interest rate cuts. RBI governor Shaktikanta Das also noted that inflation and CPI figures for October might be elevated, pushing ahead any chances of interest rate cuts in the near future.

Acuité Ratings & Research maintains its GDP growth forecast at 7.0% for FY25 while acknowledging the multiple downside risks that will require close observation in the coming months.