India’s leading service industry has showed signs of weakness in November as new export orders and output fell. However, the persistent supply of work in the economy increased the business outlook and employment significantly. This was part of business surveys released on Wednesday by S&P Global and HSBC

As for the Purchasing Managers’ Index (PMI), the November figure was 58.4, dropping little from 58.5 recorded in October. Although this figure is still reasonably healthy, it was below the expected 59.2 reading. It is notable that for 40 months in a row, there has been no month where the PMI was below the 50 point threshold and on the 40th month there we’re economic expansion and not contraction.

HSBC Chief India Economist, Pranjul Bhandari further said that Employment in services has been rising as reported in the last PMI service survey at the greatest rate since the commencement of the survey in 2005, indicating a change in the labor market situation, even though other sectors are slowing down.

Key Economic Updates

• Yet another weight on the shoulder for India regarding external debt: At $647 billion in 2023, India's external debt rose by $31 billion, as seen in a World Bank report. Such debt increments can stir concerns regarding the financial health of the country, especially as global interest rates remain high.
• Climate Risk Assessment: In the address of the Deputy Governor of the Reserve Bank of India (RBI), Mr. Michael Patra, the significance of enhancing capacity for carrying out climate risk assessments was emphasized. While climate impacts are increasingly apparent, the central bank is focusing on the transformation of its financial and policy assessment approach in order to include environmental risks.
• Concerns About Illegal Trade: The head of CBIC, Vivek Johri, observes that the increasing interdependence among the world markets has opened up avenues for more illegal trade. For regulators, especially in emerging markets like India, this definitely poses challenges.

Indian Financial Markets: A Look at Key Movements

• Money markets: The one-day call money rates settled below the Reserve Bank of India's (RBI) repo rate of 6.50 percent on Wednesday, on which day the rates were settled at 6.40 percent, falling from the previous rate of 6.45 percent. This makes it evident that banks are in less demand for funds with a surplus liquidity position in the banking system. The liquidity, as on Tuesday, was at Rs. 1 trillion, higher than Rs. 894.51 billion on the previous day. 

• Government Bonds: Bond yields fell lower as market participants became more hopeful about the prospect of a cut by the MPC (monetary policy committee) coming into operation these days. The yield on the 10-year benchmark bond-the 6.79% 2034 bond-had dropped to 6.68% at its lowest point hands since February 2022. The bond market was bolstered by heavy activity seen in the turnover, which scaled to ?904.2 billion on Wednesday as compared to ?601.15 billion on Tuesday. 
• Corporate Bonds: Corporate bond yields also inched lower on Wednesday, a day ahead of the all-important RBI meeting. The forceful trading activities, with deals crossing the ?45.78 billion mark on the exchange, showed that investors should anticipate upcoming policy changes such as rate cut or adjustments to the cash reserve ratio. 
• Forex Market: The Indian rupee closes down against the US dollar at a historic low on Wednesday. The rupee closed at 84.7400 per dollar, higher than the night before, which was 84.6850. The weaker rupee resulted from the increased dollar demand from banks for importers, coupled with a rally in dollar index in global markets.

In Conclusion

While India showed sluggishness in output and new orders in the services sector, employment growth and hiring seem to indicate optimism for the future. Following persistent pressure from rising external debt and the assessment of climate risks, the financial markets in India are responding carefully to subsequent policy announcements and developments as their government and RBI continue to bring hard-hitting policies. The latest strength of the stock market is itself testimony to the robustness demonstrated by investor sentiment amid these economic challenges.