India's services activity remained in expansion mode in June, although the sector's Purchasing Managers' Index (PMI) declined to 58.5 from 61.2 in May, according to data released by S&P Global on July 5.
For the 23rd successive month, the headline figure was above the neutral 50 threshold. A PMI reading of over 50 implies expansion while a score below 50 denotes contraction.
The services sector accounts for more than 50 percent of India's gross domestic product (GDP). India’s GDP growth accelerated to 6.1 percent in the January to March 2023 quarter, pushing the annual growth to 7.2 percent in 2022-23, official data showed in May.
"Demand for Indian services continued to surge higher in June, with all four monitored sub-sectors registering quicker increases in new business inflows," Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said.
"This bullish pick-up in growth momentum supported a further sharp upturn in business activity and encouraged another uplift in employment figures, boding well to near-term growth prospects."
While services firms showed strong performance, export growth was affected by the slump in the global economy. Despite this, services firms raised their prices at the sharpest rate since July 2017, even as input cost inflation decelerated.
De Lima pointed out that the retreat in cost pressures was overshadowed by rising expenses attributed to higher food and wage costs. Furthermore, the private sector witnessed the sharpest increase in output prices in over a decade when combined with manufacturing.
"The latest PMI results for output charges coupled with upside risks to food prices suggest that interest rates are highly unlikely to be reduced as 2023 progresses," she said.
The Reserve Bank of India (RBI) has hiked key rates by 250 basis points (bps) since May 2022 to curb inflationary pressures, but surprised markets in April by keeping them unchanged.
The price front showed mixed trends. Input costs surged at a slower rate that was broadly aligned with its long-run average, but charge inflation quickened to a near six-year high, the firm said in a release.
Further, the survey mentioned that predictions of further demand strength, favourable market conditions and customer relations boosted business confidence in June. "Companies were at their most upbeat towards growth prospects in 2023 so far," it said.
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