India's Service Activity Growth in April Among Fastest in 14 Years: PMI

India’s services sector growth eased slightly in April but growth of new business and output remained sharp and among the fastest in 14 years amid favourable economic conditions and strong demand, a monthly survey said on Monday. The seasonally adjusted HSBC India Services Business Activity Index fell from 61.2 in March to 60.8 in April, highlighting one of the strongest growth rates seen in just under 14 years.

Survey members attributed the latest upturn in output to favourable economic conditions, demand strength and rising intakes of new work. In the Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

“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,” said Pranjul Bhandari, Chief India Economist at HSBC. In addition to buoyant domestic demand, firms noted new business gains from several parts of the world, which collectively underpinned the second-quickest upturn in international sales since the series started in September 2014.

On the job front, a few service providers in India showed an increased appetite for new hires in April, amid rising inflows of new business. However, several companies indicated that payroll numbers were sufficient for current requirements, and the rate of job creation was marginal and softer than that seen at the end of the previous fiscal year. “In response to increased new orders, firms expanded their staffing levels, though the pace of hiring growth decelerated,” Bhandari said.

On the price front, wage pressures and higher food prices meanwhile led to another increase in cost burdens, which firms partially passed on to their customers. “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,” Bhandari said.

Meanwhile, confidence among service providers towards the year-ahead outlook for business activity improved to a 3-month high. Marketing efforts and efficiency gains, alongside plans to price competitively and predictions that demand conditions will remain favourable, boosted optimism, the survey said.

Meanwhile, the HSBC India Composite PMI Output Index moderated to 61.5 in April, from 61.8 in March, the latest reading was one of the highest seen in close to 14 years and signalled a substantial rate of expansion across the private sector. “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,” Bhandari said.

During April, manufacturers continued to note a stronger increase in new business intakes than service providers. Aggregate sales rose sharply, and at one of the fastest rates since mid-2010. Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.