India's Services Sector Growth Slows to Five-Month Low in October; Rate Cut Speculation Rises

India's dominant services sector experienced a slowdown in growth during October, reaching a five-month low. The HSBC India Services PMI, compiled by S&P Global, fell to 58.9 from 60.9 in September, indicating the slowest pace of expansion since May. However, the index remained well above the 50-point threshold, signifying growth for the 51st consecutive month, suggesting underlying demand remains robust.

The report highlighted softer new business growth, which dipped to a five-month low. This moderation was attributed to challenging factors such as floods, landslides, and escalating competition, which affected client inflows. International demand also weakened, with new export business expanding at its slowest pace in seven months.

Hiring activity stayed subdued, recording the joint-softest pace of job creation in 18 months, and overall business confidence slipped to a three-month low.

On the price front, there was some relief as input costs rose at the slowest rate since August 2024, partly aided by Goods and Services Tax (GST) reductions. Firms consequently increased their output prices at a seven-month low, signaling easing inflationary pressures.

Impact: Economists believe this moderation in services sector activity, alongside cooling retail inflation (which hit an eight-year low of 1.54% in September), could strengthen expectations for a policy rate cut by the Reserve Bank of India. The HSBC India Composite PMI, which tracks both manufacturing and services, also eased slightly to 60.4 from 61.0, but stronger growth in the manufacturing segment cushioned the overall economic momentum. Rating: 7/10.

Difficult Terms: * **PMI (Purchasing Managers' Index)**: An economic indicator derived from monthly surveys of private sector companies. A reading above 50 signifies expansion in activity, while a reading below 50 indicates contraction. * **HSBC India Services PMI**: A specific index measuring the performance of India's services sector, compiled by S&P Global and sponsored by HSBC. * **Composite PMI**: An index that combines the PMI data from both the manufacturing and services sectors to provide a broader view of economic performance. * **GST (Goods and Services Tax)**: A comprehensive indirect tax levied on the supply of goods and services in India. Reductions in GST can lower operational costs for businesses. * **Policy Rate Cut**: A decision by a central bank to lower its benchmark interest rates, aiming to stimulate borrowing and economic growth.