Uptick in business activity as India’s services PMI hits 4-month high

India's services purchasing managers' index (PMI) business activity index reached a four-month high of 61.4 in May 2024, up from 60.8 in April 2024, indicating a sharp increase in business activity for services firms, the steepest in four months, while factory production rose at the slowest pace since February. India's composite PMI surged to 61.7 in May 2024, a marginal leap from April's 61.5. This marks the 34th consecutive month that the index has remained above the 50-level. Nevertheless, manufacturing continued to record a stronger rate of growth than services.

The India manufacturing PMI output index saw an uptick, reaching 62.4 compared to April's 63. However, India's manufacturing index saw a slight decline, dropping to 58.4 in May 2024, according to the data compiled by S&P Global. The India manufacturing PMI is a condensed assessment of factory business health derived from factors like new orders, output, employment, supplier delivery times, and purchase stocks, which dipped from 58.8 in April to 58.4 in May. While this indicates the sector's weakest improvement in three months, it remains robust compared to historical benchmarks.

The PMI tracks the month-to-month shifts in India's manufacturing and service sectors' combined output, compiled by S&P Global.

In May's survey, there was an unprecedented surge in total exports, the most substantial increase in private sector employment since September 2006, and a significant enhancement in business confidence. However, escalating input costs resulted in higher prices for Indian goods and services.

The report highlights the signs of strength in new export orders across both the manufacturing and service sectors. At the composite level, exports expanded at the fastest rate since the inception of the series in September 2014. Meanwhile, total new orders saw a significant increase, maintaining a pace of expansion similar to that of April and consequently ranking among the fastest since mid-2010. Although manufacturing companies experienced a slowdown in their growth rate, they still outperformed their services counterparts in terms of the pace of increase.

Pranjul Bhandari, Chief India Economist at HSBC, said, "The composite PMI ticked up further in May, recording the third strongest reading in close to 14 years, supported by a sharp acceleration in the service sector. Although manufacturing sector growth slowed slightly in May, driven by a slowdown in new orders and production, the rise in output in the manufacturing industry continued to surpass that in the service economy."

He says the latest data shows strength in new export orders for both sectors, which rose at the fastest pace since the series started in September 2014. "The level of optimism about the year-ahead increased to its highest in over 11 years, resulting in firms increasing their staffing levels. However, higher input costs in both sectors led to further margin squeezes, particularly for service providers."