India's services sector PMI bounces back strong from Feb dip

India's dominant services sector experienced accelerated growth in March due to robust demand, as reported by a private business survey. The survey also revealed a significant increase in employment, marking the fastest rate of growth in seven months, while export business expanded at a record pace.

The final HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 61.2 last month, surpassing February's 60.6 reading and contradicting expectations of a decline to 60.3. This continued the trend of growth for the 32nd consecutive month, with the index remaining above the 50-mark that distinguishes growth from contraction.

Ines Lam, economist at HSBC, says, “India’s services PMI rose in March, following a small dip in February, on the back of strong demand that spurred sales and business activity.”

The buoyant domestic demand and favourable economic conditions led to an increase in new business, with exports growing at the fastest pace since the sub-index was included in the survey in September 2014.

“The HSBC PMI, compiled by S&P Global, also highlighted increased pressure on the capacity of service providers, which in turn supported the joint-fastest rise in employment since November 2022,” the report states.

This positive momentum prompted firms to ramp up hiring at the quickest rate since August 2023, which is particularly encouraging for a country with a substantial annual influx of new entrants to the workforce.

While the outlook for the upcoming year remained optimistic, concerns about competitive pressures led to a slight decrease in the future activity sub-index, reaching a four-month low in the latest reading.

“Rising from 60.6 in February to 61.2 in March, the seasonally adjusted HSBC India Services Business Activity Index pointed to one of the strongest growth rates seen in over 13-and-a-half years,” it adds.

Additionally, rising input costs alongside robust demand pushed firms to raise output prices, resulting in the strongest rate of price increases since July 2017. Despite higher input costs, service providers managed to maintain margins by charging higher prices for their services, as noted by Lam.

The higher prices could potentially influence the Reserve Bank of India (RBI) to maintain its repo rate at 6.50% for an extended period. The robust expansion in the services sector, combined with accelerated growth in the manufacturing industry in March, contributed to the HSBC final India Composite PMI Index reaching an eight-month high of 61.8, surpassing the previous month's reading of 60.6 and exceeding initial expectations of 61.3.