India's Services Sector PMI Improves To 60.5 In June On Output Growth

In June, the new orders received by Indian service providers kept rising in the month. The increase in overall new business was due to a record growth in international orders

Indian service providers were encouraged to hire additional staff by the end of the first quarter owing to positive client appetite. (Image Source: Unsplash)

India’s services sector recovered slightly in June as the seasonally adjusted HSBC India Services Business Activity Index clocked at 60.5 in the month. This recovery was attributed to a sharp increase in output. 

Compiled by S&P, the index revealed that the pace of growth in output was quicker than May and surpassed the long-run average. Notably, the HSBC India Services Purchasing Managers’ Index (PMI) in May stood at 60.2.

The growth was explained by demand strength and surging intakes of new business. The index is compiled by the agency from responses to questionnaires shared with a panel of nearly 400 service sector firms.

In June, the new orders received by Indian service providers kept rising in the month. The increase in overall new business was due to a record growth in international orders.

In terms of destinations for new work from overseas, Asia, Australia, Europe, Latin America, the Middle East, and the US emerged as the major sources. The pace of job generation was the strongest in 22 months. Indian service providers were encouraged to hire additional staff by the end of the first quarter owing to positive client appetite.

The survey noted, “June data indicated a sustained upturn in Indian service sector output, with the rate of expansion quickening from May's five-month low amid a stronger rise in new orders and an unprecedented expansion in international sales. Moreover, staffing levels increased at the fastest pace since August 2022, as short-term and permanent staff were taken on to support pipelines of new work.”

Composite PMI

The HSBC India Composite Output Index also increased to 60.9 in June, recovering from 60.5 logged in May. This indicated a sharp expansion that was majorly above the long-run average. 

The increased was driven by the manufacturing sector for the fifth consecutive month. Private sector employment also grew at a sharp pace and this growth was one of the quickest since the series began in December 2005. 

Economist’s Comments

Pranjul Bhandari, Chief India Economist, HSBC, noted, “Activity growth in India’s service sector accelerated in June, with the index rising by 0.3 ppt to 60.5, led by an increase in both domestic and international new orders. This encouraged services firms to increase their staffing levels at the fastest pace since August 2022. Input costs rose at a moderate pace, resulting in a softer uptick in output charges in June. Overall, service providers remain confident about the year-ahead business outlook, although the level of optimism moderated sharply during the month. The Composite PMI also accelerated in June, supported by greater inflows of new orders. Manufacturing firms contributed more to the expansion than services firms.”

Sector Outlook

Regarding the outlook of the sector, the survey said that the panellists remained optimistic about an increase in business activity over the next 12 months and nearly 23 per cent of the survey respondents expressed confidence about the same. 

However, the overall level of positive sentiment dipped to an 11-month low due to worries around market uncertainty and competition.