India's business activity rises to 13-month high of 61.2 in May, shows HSBC Composite PMI

India continues to shine

India’s economy continued to shine in May with the business activity index or Composite PMI climbing to a 13-month high of 61.2, compared with 59.7 in the previous month, despite India-Pakistan conflict negatively impacting operations for some firms, preliminary data released by HSBC on May 22 showed.

"India’s flash PMI indicate another month of strong economic performance. Growth in production and new orders among manufacturing firms remains robust, despite a marginal cooling from the rates of increase observed in April," Pranjul Bhandari, chief India economist, HSBC said.

India has been one of the better performing economies in the world after US President Trump unleashed higher tariffs on imports, with the Purchasing Managers’ Index - an indicator of business activity - inching higher at a time when most other countries have witnessed contraction. The uncertainty has prompted Indian exporters to rush to deliver products to the American shores.

The value of 50 separates expansion from contraction in the PMI index.

"Order books were supported by strengthening international demand for Indian goods and services, with the private sector registering the fastest rate of increase in exports in a year," HSBC stated.

Manufacturing edged up slightly to 58.3 from 58.2 in the previous month, but it was the services sector that pushed business activity higher. Flash Services PMI rose to a the highest level in 14 months and joint highest in 16 months. Flash Manufacturing PMI was at a 11-month high.

The rise in output also helped provide fillip to employment, which jumped to its highest level since December 2005.

The better performance spilled over to optimism as well, as they suggested that healthy demand will support sales.

Manufacturing firms were less optimistic as the threat of tariffs weighs on demand.

There was negative news on the price front as well, with companies reporting inflation rising to a six-month high. But demand  strength helped companies passthrough the costs to consumers.

The Indian economy is likely to come out stronger compared to others, with IMF expecting only a 0.3 percentage points drop in growth to 6.2 percent, compared with 6.5 percent as projected earlier. The global economy is expected to get a 0.8 percentage point jolt, while the US will suffer a drop of 0.9 percentage point.

China's growth is expected to be worst hit with a 1.3 percentage point drop.

However, since the release of IMF numbers, US and China have scaled back from their previous stance of over prohibitive tariffs of over 100 percent, providing some reprieve to businesses.

Flash PMI data is calculated based on 80-90 percent of responses from 800 firms (400 each for manufacturing and services).

The final data for manufacturing will be released on June 2 and for services on June 4. The government is set to release data for fourth quarter or January-March GDP on May 30.