PMI signals Services growth receded to a 5-month low in May

HSBC India Services PMI shows growth slowdown in May, but firms optimistic; hiring up, input costs rise.

Activity in India’s services sectors slumped to a five-month low in May, with competition, price pressures and a severe heat wave denting growth in new orders and output, as per the seasonally adjusted HSBC India Services Business Activity Index that fell to 60.2 from 60.8 in April. A reading of over 50 on the survey-based index indicates an expansion in activity levels.

However, fresh orders from international markets surged at the sharpest pace in nearly 10 years, while surveyed firms indicated greater confidence in the outlook for business prospects, lifting their measured optimism to an eight-month high. Survey participants noted strong growth of demand from Asia, Africa, Europe, the Middle East and the U.S.

Hiring activity among the 400 firms surveyed for the index increased by the greatest extent since August 2022, as they picked up more junior and mid-level workers in May. “One factor that underpinned recruitment was a pick-up in capacity pressures among service providers. Outstanding business volumes rose at the quickest pace in nearly three-and-a-half years,” the statement said.

Firms reported a rise in input costs through May, especially on labour and materials such as meat, vegetables and packaging.

“While some companies suggested that additional labour costs stemmed from overtime payments and upward salary revisions due to demand strength and productivity gains, several firms indicated having taken on extra staff,” noted a statement on the index that is also known as HSBC India Services PMI (Purchasing Managers’ Index).

With the Manufacturing PMI also at a three-month low in May, overall private sector growth in India receded to the slowest since December 2023. The HSBC India Composite Output Index slipped from 61.5 in April to 60.5 in May.

Input costs for goods and services firms rose at the highest pace in nine months, compelling them to raise charges by a greater extent in May. Collectively, companies were still at their most optimistic since September 2023.