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India services activity drops to four-month low in September
Photo Credit: Reuters

Activity in India's dominant services sector eased to a four-month low in September on dwindling demand, while intensifying price pressures pointed to a bumpy road ahead, a private survey showed on Thursday.

The Nikkei/IHS Markit Services Purchasing Managers' Index fell to 50.9 last month from 51.5 in August, and held just above the 50 mark that separates growth from contraction.

Although services firms reported the strongest quarterly performance in two years during the three months through to September, worries over the pace of rising costs continued to weigh on business activity.

A sub-index tracking new business orders - a measure of demand - declined to a seven-month low of 50.1 in September from 51.0 in August.

"Growth of India's services economy spluttered during September amid reports of faltering demand for services," said Paul Smith, economics director at IHS Markit, in a news release.

Despite a pick-up in factory activity, sluggish demand growth for services meant the India composite PMI fell to a four-month low of 51.6.

In September, input costs for services firms rose at the quickest pace since November, which forced them to pass on some of that burden to customers. That resulted in output prices rising at the fastest pace in five months.

Firms, which were hobbled by a lack of demand, reported that market conditions were underwhelming at a time of rising costs.

The business expectations index, which measures optimism, eased from the previous month though it remained in solidly positive territory.

The rising input costs - also a highlight in a separate manufacturing survey earlier this week - along with the rupee's recent slump to record lows backed the case for another rate hike by the Reserve Bank of India (RBI) on Friday.

A Reuters poll forecast the RBI to hike its repo rate to 6.75 percent this week, which would be its third this year, after it lifted borrowing costs in June and August.

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