Services PMI climbs to a 4-month high in November on domestic demand

Business activity in India’s dominant services sector expanded in November at the quickest pace in four months, lifted by a significant rise in domestic demand, a private survey showed on Wednesday.

This will offer some relief to Asia’s third-largest economy, which last week reported slower economic growth in the July-September quarter.

The Nikkei/IHS Markit Services Purchasing Managers’ Index rose to 53.7 last month from 52.2 in Oct, its highest since July and above a Reuters poll consensus of 52.5.

The index has been above the 50-mark that separates growth from contraction for six straight months.

Pollyanna De Lima, a principal economist at IHS Markit, said the welcome news “complements similar upbeat results” in the manufacturing industry, issued earlier in the week, and suggest the private sector economy “will provide impetus” to India’s Q3 fiscal year 2018 GDP results.

The sub-index for employment showed expansion for a 15th straight month, though job-creation was at the slowest pace since September.

In the latest survey, the new business orders sub-index, a proxy for domestic demand, rose to a four-month high of 53.3 in November but foreign demand for Indian exports contracted for the first time in six months.

Stronger services activity and better-than-expected growth in manufacturing pushed a composite index from October’s 53.0 to 54.5 - its highest since over 80 percent of India’s currency in circulation was wiped out by the government in late 2016.

Despite input cost inflation easing to a seven-month low in November, stronger business demand let firms raise prices more steeply and improve margins, posing upside risks to inflation.

According to a separate Reuters poll, the Reserve Bank of India (RBI) will hike interest rates once next year, after raising them twice so far in 2018.