India services PMI falls to 60.8 in April; growth still at fastest pace in under 14 years

Data on Services PMI for April was released on May 6.

A measure of India's services growth fell to 60.8 in April, still registering one of the strongest paces of expansion in about 14 years, data released on May 6 showed.

The April figure, as compiled by S&P Global in the HSBC India Services PMI Business Activity Index, declined from 61.2 in March and was lower than flash estimates of 61.7, mainly due to a moderation in new export orders.

“India’s service activity rose at a slightly softer pace in April, backed by a further rise in new orders, with a notable strength in domestic demand," said Pranjul Bhandari, chief India economist at HSBC. "Although new export orders remained robust, they showed a slight moderation from March figures. In response to increased new orders, firms expanded their staffing levels, though the pace of hiring growth decelerated. Input costs continued to rise sharply, albeit slower than in March, but resulted in squeezed margins for service firms, as only part of the price rise was passed on to clients through output charges."

New export business among services companies increased at the second-fastest pace in the near 10-year history of the series, behind only that seen in March. Anecdotal evidence highlighted gains from several countries in Asia, Africa, Europe, the Americas and Middle East. Still, total new orders continued to rise at a stronger rate than exports.

The upturn in overall sales was well above the long-run average and among the strongest in 14 years. Amid reports of higher input (particularly fruits and vegetables) and labour costs, operating expenses continued to increase in April. The overall rate of inflation pulled back since March and was broadly aligned with its long-run average.

However, the Consumer Services segment saw the sharpest increase in input costs by far.

The index compiler said a few service providers in India exhibited higher appetite for new hires in April. However, the rate of job creation was marginal and softer than at the end of the previous fiscal year, with several companies indicating that payroll numbers were sufficient for current requirements.

The confidence among service providers towards the year-ahead outlook for business activity improved to a three-month high.

The final HSBC India Composite PMI fell slightly to 61.5 in April from 61.8 a month ago. However, the latest reading was one of the highest in almost 14 years. The composite PMI was also lower than the flash estimate of 62.2.

"Overall confidence among service providers for the year-ahead outlook improved markedly, bolstered by resilient demand conditions. In terms of overall activity, aggregate output across both the manufacturing and service sectors rose significantly in April, albeit at a slightly slower pace, indicating sustained health in these sectors," Bhandari said.

While aggregate sales rose sharply, and at one of the fastest rates since mid-2010, goods producers also led April's rise in payroll numbers, with softer growth in the service economy curbing job creation at the composite level.