India's services PMI softens in April

The country's Purchasing Managers' Index softened to 60.8 in April, according to the latest HSBC India Services PMI survey conducted by S&P Global. In March, the country’s services PMI stood at 61.2. A reading above 50 indicates an overall increase in the factory output. Notably, the expansion in total sales and output were the fastest in 14 years.

"India’s service activity rose at a slightly softer pace in April, backed by a further rise in new orders, with a notable strength in domestic demand. Although new export orders remained robust, they showed a slight moderation from March figures," says Pranjul Bhandari, chief India economist, HSBC.

"In response to increased new orders, firms expanded their staffing levels, though the pace of hiring growth decelerated. Input costs continued to rise sharply, albeit slower than in March, but resulted in squeezed margins for service firms, as only part of the price rise was passed on to clients through output charges. Overall confidence among service providers for the year-ahead outlook improved markedly, bolstered by resilient demand conditions. In terms of overall activity, aggregate output across both the manufacturing and service sectors rose significantly in April, albeit at a slightly slower pace, indicating sustained health in these sectors," he adds.

According to the survey, in April, business activity increased across the four sub-categories monitored by the survey, led by steep growth in finance and insurance. Notably, services companies observed the second-fastest increase in new export business in the 10 years, behind only that seen in March. Moreover, total orders continued to rise at a stronger rate than exports. “The upturn in overall sales was sharp, well above its long-run average and among the strongest in 14 years,” says the survey.

Meanwhile, amid the reports of higher input, and labour costs, operating expenses continued to increase in April. “The overall rate of inflation pulled back since March and was broadly aligned with its long-run average,” says the survey.

Amongst segments, the consumer services segment witnessed the sharpest increase in input costs. “A backdrop of robust underlying demand enabled service providers to pass part of their additional cost burdens through to clients in the form of increased charges. The rate of selling price inflation eased from March's near seven-year high and was close to its long-run trend,” as per the survey.

In terms of employment, only a few service providers hired new employees in April buoyed by rising inflows of new business. Contrary to this, the job creation was marginal and softer in several companies indicating that payroll numbers were sufficient.

Notably, the domestic manufacturing PMI witnessed a marginal decline to 58.8 in April. The rate of expansion was the third-strongest since early 2005.