India’s Services Sector Sees Accelerated Recovery as PMI Reaches Highest Level
India’s services sector has experienced significant growth, achieving its fastest expansion in ten months during June. The HSBC India Services PMI report, released on Thursday, highlighted a surge in domestic demand, increased international sales, and ongoing job creation as key drivers of this growth. The seasonally adjusted Services PMI Business Activity Index rose to 60.4, up from 58.8 in May, indicating robust activity in the sector. This marks the highest reading since August 2024, reflecting a positive outlook for the Indian economy.
Strong Domestic Demand Fuels Growth
The latest PMI report reveals that the Services PMI business activity index reached a ten-month high, primarily due to a notable increase in new domestic orders. Pranjul Bhandari, chief India economist at HSBC, noted that while new export orders also grew, the pace was slower compared to domestic orders. The report indicates that June saw the most significant expansion in new business orders since August 2024, driven by heightened domestic activity and rising demand from international markets, particularly in Asia, the Middle East, and the United States. This surge in demand has had a positive impact on employment, with the survey recording job growth for the 37th consecutive month. Although the hiring pace was slightly lower than the record high observed in May, it remained above the long-term average, showcasing the resilience of the services sector.
Sector Performance and Inflation Trends
In terms of sector performance, Finance and Insurance led the way in both output and order growth, while Real Estate and Business Services experienced the slowest expansion. The report also highlighted that Consumer Services firms faced the highest input inflation, whereas Finance and Insurance firms recorded the most significant increase in output prices. Despite these inflationary pressures, there are signs of cooling, with input costs rising at the slowest rate in ten months. Additionally, the inflation of output charges softened from May, although it remained above historical averages. Some firms reported increased staff wages but managed to pass on these costs due to strong pricing power, indicating a balanced approach to managing expenses while maintaining profitability.
Composite PMI Index and Future Outlook
The broader private sector also reflected positive momentum, with the HSBC India Composite PMI Output Index climbing to 61.0 in June, the highest level in 14 months. This index combines data from both manufacturing and services sectors, weighted by their contribution to GDP. Despite the strong performance, optimism among service providers has slightly moderated. Bhandari noted that while service providers remain hopeful about future growth, their confidence has waned, with only 18% of respondents anticipating output growth in the coming year. This figure represents the lowest level of optimism since mid-2022, suggesting that while the current growth is encouraging, there are concerns about sustaining this momentum in the future.
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