Growth in India's services sector quickened in Oct, optimism highest since early 2015

By Shaloo Shrivastava

BENGALURU (Reuters) - Activity in India's dominant services industry gathered pace in October despite high inflationary pressures, underpinned by robust domestic demand, leading to the second fastest hiring pace in over three years, a private survey showed.

The S&P Global India services Purchasing Managers' Index edged up to 55.1 in October from September's six-month low of 54.3, easily beating the Reuters poll expectation for 54.6 and above the 50-mark that separates expansion from contraction for a fifteenth month.

That marked the longest stretch of growth since October 2016.

"The October results show us that service providers had no trouble securing new work in October, despite lifting their charges again," noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

The new business sub-index, a measure of demand, rose from a six-month low in September as improved market conditions boosted sales.

That was despite high operating costs recorded last month. The rate of inflation outpaced its long-run average, suggesting no respite from higher cost pressures in Asia's third-largest economy.

"Many companies indicated that higher food, fuel and retail prices pushed up their overall expenses in October. With some of this additional cost burden shared with customers, prices charged for the provision of services likewise rose," added De Lima.

Inflation in India has been hovering above the Reserve Bank of India's (RBI) target range of 2%-6% since the start of this year. The RBI has raised its key interest rate by 190 basis points since May to reduce price pressures and hold up a tumbling currency.

The RBI was predicted to hike by another 50 basis points to a peak of 6.40% by end-March 2023, a Reuters survey taken last month showed.

Down over 10% this year, the Indian rupee was expected to recoup only around 1.5% over the next 12 months, another Reuters poll showed.

Job creation in the services sector ticked up and business expectations were at an almost eight year high. Barring August, hiring was the second-fastest in over three years.

The overall S&P Global India Composite PMI Output Index rose to 55.5 from 55.1 in September as activity in both manufacturing and services remained strong.

(Reporting by Shaloo Shrivastava; Editing by Kim Coghill)