Services PMI jumps to three months high in December

04 Jan 2013 Evaluate

India’s services sector logged a growth at its strongest pace in three months during December, after company’s order books filled at the quickest rate since last February. The seasonally adjusted HSBC Services Business Activity Index posted 55.6 in December, up from 52.1 in the previous month. The 50 mark separates growth from contraction and the index has held above that level for over a year now.

As has been the case since May 2009, the volume of incoming new work in the Indian private sector rose during December. With manufacturing and services companies both registering sharp growth, the overall rate of expansion was steep and the fastest in ten months. The HSBC India Composite Output Index posted 56.3 in December, up from 53.2 in November. Meanwhile, the activity in the Indian private sector improved during December for the forty-fourth successive month. Both, manufacturers and service providers signaled increase in output, with rates of growth quickening in both sectors.

Additionally, the report pointed out that though, manufacturing and services firms both signaled higher staffing, the overall rate of job creation was only minor, with the employment in the private sector rising at the slowest rate in the current 10-month sequence of job creation. Meanwhile, the volume of work-in-hand (but not yet completed) at private sector companies in India rose in December. The pace of accumulation was solid and the fastest in 30 months.

Further, December data signaled eased inflation reading even as input prices continuing the trend that started in April 2009, rose during December. Although sharp, the pace of inflation eased to a 30-month low. Furthermore, optimism was signaled by service providers in India during December, with approximately 46% of monitored companies expecting an overall activity to increase in the upcoming year, given the anticipated rise in demand, the launch of new projects and increased advertising.

Led by a sharp rise in new business, the service sector provided some holiday cheer with full recovery of activity after two months of deceleration. Meanwhile, the new business sub-index jumped to 57.1 in December from 54.9 in the previous month. Further, the additional work load also led to a rise in outstanding business.

Thus, with growth showing signs of recovery and inflation still being elevated, the case for a policy rate cut is not yet convincing. However, the RBI has clearly indicated for rate cut in January-March. The central bank has held interest rates steady since April, citing high price pressures, even as financial markets and the government have clamored for rate cuts.

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