India’s services PMI cools to 5-month low in May; composite PMI index falls too

Growth in India's services sector activity slowed to a five-month low in May due to weakened domestic demand, according to a survey. However, the survey also indicated that exports grew at a record pace and job creation rose to a 21-month high. The final HSBC India Services Purchasing Managers' Index, compiled by S&P Global, fell to 60.2 in May from April's 60.8, contrary to a preliminary reading predicting a rise to 61.4. Despite the slowdown, the index remained above the 50 mark, indicating growth, for the 34th consecutive month.

“India’s service activity rose at a slightly softer pace in May, with domestic new orders easing slightly, but remaining robust, implying strong demand conditions and successful advertising. New export orders surged at a record pace, with broad-based demand from across the globe. On the price front, cost pressures ticked up in May led by higher raw material and labour costs. Firms were only able to transfer a part of the price rise to customers. Good news is the level of optimism about the year-ahead outlook rose at the fastest pace in eight months, leading service firms to increase their staffing levels. Overall composite output rose at a slightly slower pace, led by slower rises in both factory production and service activity,” said Maitreyi Das, global economist at HSBC.

The new business sub-index, which measures demand, remained strong in May but grew at the slowest pace this year due to fierce competition and heat waves affecting livelihoods across the country. However, exports expanded at the fastest rate since the sub-index was included in the monthly survey nearly a decade ago. 

Signs of recovery in China and resilient economic activity in the U.S. suggest that global demand could continue to pick up. Strong sales boosted the business outlook for the next 12 months to an eight-month high, prompting services firms to add jobs at the fastest pace since August 2022. 

However, price pressures increased last month compared to April, with input prices rising above their long-run average and prices charged also accelerating slightly.

Meanwhile, India's manufacturing growth slowed to a three-month low in May as a heatwave prompted some companies to reduce working hours. The HSBC final India Manufacturing Purchasing Managers' Index dipped to 57.5 in May from April's 58.8. As business activity in both manufacturing and services eased slightly in May, it meant the overall HSBC India composite PMI output index fell too. 

“The HSBC India Composite Output Index slipped from 61.5 in April to 60.5 in May, highlighting the slowest rate of expansion since last December. There were softer increases in both factory production and services activity,” stated S&P.