India’s services PMI recovers in June on rise in domestic, international orders

India's services sector growth, which softened to a five-month low in May, recovered in June, driven by a surge in sales, showed a business survey on Wednesday.

Buoyed by the increase in both domestic and international orders, services firms ramped up their hiring at the fastest pace since August 2022, the survey showed.

The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.5 in June from 60.2 in May. The index hit a six-month peak of 61.8 in January.

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The reading has remained above 50, which separates expansion from contraction, for 34 months.

The pick-up in services growth follows a rise in manufacturing PMI, which rose to 58.3 in June from a three-month low of 57.5 in May.

The June services PMI was also above HSBC’s projection of 60.4, mentioned in its Flash Services PMI Business Activity Index in May.

"New orders received by Indian service providers continued to rise in June, extending the current sequence of expansion to nearly three years," the survey said. "The pace of growth was sharp, faster than in May and well above its long-run average," it added.

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Health of the economy

India's services sector—among the world's fastest growing—accounts for more than half of the country's gross domestic product (GDP).

India's GDP expanded at a blistering 8.2% in 2023-24, ably supported by January-March quarter growth of 7.8%, better than the Reserve Bank of India's (RBI's) revised GDP growth forecast of 7% for the fiscal year.

The RBI expects India's GDP to register a growth of 7% in 2024-25.

“Activity growth in India’s services sector accelerated in June, with the index rising 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," said Pranjul Bhandari, chief India economist at HSBC.

"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," Bhandari added.

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In terms of overall activity, aggregate output acrossboth the manufacturing and service sectorsrose in June, highlighting a sharp rate of expansion that was considerably above the long-run series average.

A rise in both manufacturing and services PMIs pushed up the HSBC India Composite PMI Output Index to 60.9 in June from 60.5 in May.

Bhandari said that while the composite PMI also accelerated in June, supported by greater inflows of new orders, manufacturing firms contributed more to the expansion than services firms.