Robust services drive India's business activity to 3-month high in Nov, cost pressures grow

Bengaluru: India's business activity rose at its fastest pace in three months in November, helped by an improving services industry and record job creation, but output inflation spiked to a near 12-year high, a survey showed.

The findings are likely to add to economic growth in the ongoing festive quarter which is expected to pick up thanks to a rebound in private consumption, despite Asia's third-largest economy reporting its highest retail inflation in 14 months.

HSBC's flash India Composite Purchasing Managers' Index , compiled by SP Global, rose to 59.5 this month from October's final reading of 59.1, taking the expansionary streak to 40 months.

The 50-level separates growth from contraction.

"Services saw a pick-up in growth, while the manufacturing sector managed to outperform expectations despite a marginal slowdown from its October final PMI reading," noted Pranjul Bhandari, chief India economist at HSBC.

A PMI for the dominant-services sector rose to 59.2 from 58.5 last month, its highest since August. The manufacturing sector also continued to expand in November, although the pace slowed slightly and its index fell to 57.3 versus 57.5.

Overall domestic demand rose thanks to better sales in the services industry offsetting slower manufacturing orders growth, but overseas demand improved for both sectors with the latter's exports accelerating to a four-month high.

That boosted the business outlook for the coming year as overall optimism rose to the highest since May, prompting companies to ramp up hiring.

Led by services firms, employment generation rose at the fastest pace since the survey began in December 2005, a positive indicator of economic health and consumer spending power.

However, rising inflationary pressures cast a shadow on the positive sentiment, with input costs increasing at the fastest pace in 15 months, forcing businesses to pass the burden to clients and resulting in output inflation spiking at the steepest pace since February 2013.

"Price pressures are rising for raw materials used by manufacturers, as well as food and wage costs in the services sector," added Bhandari.

The Reserve Bank of India has recently expressed concerns regarding quickening core inflation. That is likely to prompt the central bank to maintain a cautious stance and it could keep interest rates on hold at its meeting in early December.