India's Services PMI hits 13-year high of 62.3 in July

India's services purchasing managers’ index touched a 13-year high of 62.3 in July as compared to 58.5 in June, aided by substantial improvement in international demand,  as per the S&P Global India Manufacturing Purchasing Managers' Index. A reading above 50 indicates an overall increase in factory output compared to the previous month. This is the sharpest increase in output since July 2010, says S&P Global.

According to the PMI report, the domestic services PMI registered a strong performance for the sector during July, with a substantial improvement in demand conditions inducing the strongest increases in new business and output in over 13 years. "Cost pressures intensified, though charges were raised to a weaker extent as firms were cautious about their pricing strategies. Looking ahead, companies continued to predict higher activity levels. That said, concerns over extreme weather somewhat dampened optimism," says the report.

During the month under review, international sales, especially across Bangladesh, Nepal, Sri Lanka and the UAE, picked up pace leading to an upturn in total new orders. As per the PMI report, the month under review reported the second-fastest increase in new export orders since September 2014. Notably, the manufacturing sector also witnessed growth in new export business in July.

"The resilience of the service sector underscores its vital role in fuelling India's economy, with the PMI results for July so far pointing to a notable contribution from the sector to overall GDP for the second fiscal quarter. The broad increases in sales across the domestic and international markets are particularly welcoming news, especially in light of the challenging global economic scenario. Firms noted a widespread upturn in services exports to several nations including Bangladesh, Nepal, Sri Lanka and the UAE," says Pollyanna De Lima, economics associate director, S&P Global Market Intelligence.

"Looking at PMI price indices in recent months, it seems that competitive advantage continued to support demand for Indian services, with increases in output prices here modest relative to several other nations. Although input cost inflation ticked higher in July, service providers were again cautious in their price-setting decisions amid efforts to not deter sales," she adds.

According to S&P Global, output prices increased at the slowest rate in three months.

The companies in the services sector continued to expand their workforce by "hiring a combination of part-time, full-time, permanent and temporary staff." Service sector employment expanded at a slight pace that was broadly similar to those seen in the prior two months, however, says S&P Global.

"Looking at the sub-sector data, Finance & Insurance was the brightest spot regarding business activity and new orders, topping the growth rankings in both instances. As for inflation, the sharpest increase in input costs was seen in Consumer Services and for output charges in Real Estate & Business Services," according to the PMI report.

Notably, the country’s manufacturing activity in July softened marginally to 57.7 in July from 57.8 in June.