India Services Sector Growth Slows to 5-Month Low in October

India's services sector saw its slowest expansion in five months during October, as indicated by the HSBC India Services PMI, which dropped to 58.9 from 60.9 in September. This moderation is attributed to increased competition among businesses and adverse weather conditions, particularly heavy rainfall in some regions.

Key Findings: Although growth slowed, the index remains significantly above the neutral 50 point, signifying continued expansion, and is higher than the historical average. The survey of around 400 firms highlighted that while demand was robust and tax (GST) adjustments provided relief, competitive pressures and weather impacted momentum. External demand for Indian services also grew, albeit at a slower pace than in previous months. A positive sign is the deceleration in input cost and output charge inflation, reaching 14-month and 7-month lows, respectively, partly due to GST measures. Business confidence for the next year remains strong, leading firms to hire more staff to manage new orders.

Impact: This news signals a slight moderation in the growth pace of India's services sector, a key component of the economy. While not a contraction, the slowdown could be a point of observation for investors regarding overall economic momentum and potential implications for corporate earnings in the services industry. The reduction in cost inflation is a positive for business margins. Rating: 6/10.

Definitions: PMI (Purchasing Managers' Index): An economic indicator based on monthly surveys of companies across various sectors. A reading above 50 suggests expansion, while a reading below 50 indicates contraction. Business Activity Index: This part of the PMI measures the change in the volume of services provided by businesses compared to the previous month. Seasonally Adjusted: Data that has been adjusted to remove the effects of regular seasonal variations, allowing for better comparison between periods. Neutral 50 Mark: The benchmark point in a PMI index; above 50 means growth, below 50 means contraction. Composite PMI: An index that combines data from both manufacturing and services sectors, weighted according to their contribution to the national economy (GDP), to provide a broader view of economic activity. GST Reform: The Goods and Services Tax is a comprehensive indirect tax on goods and services in India. Reforms in this area can affect business operations and costs. Input Costs: Expenses incurred by businesses for raw materials, energy, and other resources needed for production or service delivery. Output Charges: The prices that businesses set for their products or services.