India’s services sector experienced a notable acceleration in growth during June, rebounding from a five-month low observed in May. According to the latest report from the HSBC India Services Business Activity Index, the sector’s seasonally adjusted index rose from 60.2 in May to 60.5 in June. This increase signals a robust expansion in output, driven primarily by a surge in new orders both domestically and internationally.
In the Purchasing Managers’ Index (PMI) context, any score above 50 indicates expansion, while below 50 signifies contraction. The rise to 60.5 underscores the strengthening of economic activities within India’s service sector, marking it as one of the sharpest increases in recent months.
Pranjul Bhandari, Chief India Economist at HSBC, highlighted the factors behind this growth, stating, “Activity growth in India’s service sector accelerated in June, with the index rising by 0.3 percentage points. This was fueled by significant increases in domestic and international new orders.” The positive momentum prompted service firms to ramp up their staffing levels at the fastest pace since August 2022, reflecting growing confidence and demand within the sector.
Key drivers of this growth include robust demand strength and increasing intakes of new business. Service providers in India reported a continuous uptick in new orders throughout June, extending the current expansion trend for nearly three years. Notably, there was a record expansion in international orders, with Asia, Australia, Europe, Latin America, the Middle East, and the US cited as significant sources of new work.
The surge in client demand also prompted service providers to expand their workforce significantly. Staffing levels saw their most rapid increase since August 2022, as firms hired both short-term and permanent staff to manage the influx of new projects and maintain service quality.
Despite these positive indicators, service providers faced moderate cost pressures during June. Higher expenses in food, fuel, and labor contributed to a slight uptick in average costs. However, the pace of inflation recorded its weakest level in four months, with selling prices rising at the slowest pace since February.
Looking ahead, optimism remains high among service providers regarding future business activity. Nearly 23% of surveyed panelists expressed confidence in a rise in business activity over the next 12 months. Bhandari commented, “Input costs rose moderately, leading to a softer increase in output charges in June. Overall, service providers maintain confidence in the business outlook for the coming year, although optimism levels moderated slightly during the month.”
The HSBC India Composite Output Index, which combines manufacturing and services PMI indices, also showed improvement, rising from 60.5 in May to 60.9 in June. This acceleration was driven by increased inflows of new orders, with manufacturing firms playing a more substantial role in the expansion compared to services firms.
Moreover, private sector employment witnessed a sharp expansion, marking one of the fastest growth rates since December 2005. This surge in hiring underscores the sector’s confidence in sustained business growth and economic recovery.
Compiled by S&P Global from responses to questionnaires sent to around 400 service sector companies, the HSBC India Services PMI provides a comprehensive overview of the sector’s performance. It serves as a critical indicator of economic health, influencing policy decisions and investor sentiment.
In conclusion, the latest data indicates a robust rebound and growth trajectory for India’s services sector in June. With strong domestic and international demand, coupled with optimistic business outlooks, the sector is poised for continued expansion in the months ahead.
