India Services Growth Reaches 6-Month High in May, Driven by Domestic Demand

India's Services Sector Posts Fastest Growth in Six Months

India's dominant services sector experienced its fastest growth in six months in May, driven by a significant pick-up in domestic demand. Despite global orders remaining below last year's average, the sector managed to register growth. According to a recent survey, the HSBC's India Services Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 59.8 in May from April's 58.8, surpassing a preliminary estimate of 58.9. A reading above 50.0 signifies growth, and India's services PMI has consistently remained above this threshold since mid-2021.

New business, a crucial indicator of demand, saw a significant increase in May, reaching its highest level since November 2022. This growth was primarily driven by the e-commerce, entertainment, and IT sectors. Export orders also experienced a slight increase, although they remained below their previous levels due to ongoing uncertainty surrounding the U.S. trade deal. Despite this, hiring continued, albeit at a slightly slower pace, with fewer than 7% of firms surveyed reporting new recruitment. This suggests that the headline expansion may not yet be translating into broad-based job creation across the services sector.

Input cost inflation retreated for a second consecutive month, easing from a 45-month high struck in March. This provided firms with some relief, as the prices charged sub-index eased to a four-month low. However, despite the headline strength, the business outlook index slipped to 61.9 from 62.3 - its second consecutive monthly dip - and was below its historical average. This indicates that firms are growing more cautious.

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The broader private sector economy also experienced a pick-up in steam, with the Composite PMI, which combines services and manufacturing, rising to 59.3 in May from 58.2, its highest in six months.