Driven by a sharp acceleration in the services sector, India’s business activity expanded at its third strongest rate in nearly 14 years. The HSBC Flash India Composite Output Index, or Flash PMI, rose to 61.7 in May from 61.5 in April, according to data released by S&P Global on Thursday.
Services firms recorded a significant increase in business activity, the steepest in four months, while factory production rose at its slowest pace since February, stated S&P Global. Despite this, manufacturing continued to grow at a stronger rate than services.
In May, the HSBC Flash India Services PMI Business Activity Index increased to 61.4 from 60.8 in April, whereas the HSBC Flash India Manufacturing PMI Output Index decreased to 62.4 from 63.0.
The latest data highlights robust growth in new export orders across both the manufacturing and services sectors. At the composite level, international sales expanded at the fastest rate since the series began in September 2014, said S&P Global. “Respondents noted gains from many parts of the world, including Africa, Asia, Australia, the Americas, Europe, and West Asia.”
Pranjul Bhandari, chief India economist at HSBC, noted that although manufacturing sector growth slowed slightly in May due to a decrease in new orders and production, “the rise in output in the manufacturing industry continued to surpass that in the services economy.”
Meanwhile, reports of higher labor and material costs led to input prices across the private sector rising at the fastest pace in nine months. Increases were noted in prices for chemicals, food, plastics, electronic components, and electrical items.
Aggregate selling prices also rose more significantly in May. The manufacturing industry saw a faster increase in charges, contrasting with the trend seen for input prices, noted S&P Global.
Looking ahead, Bhandari mentioned that optimism for the year ahead reached its highest level in over 11 years, prompting firms to increase staffing levels. “However, higher input costs in both sectors led to further margin squeezes, particularly for service providers,” she said.
The Flash India composite PMI is a seasonally adjusted index measuring the month-on-month change in combined output from India’s manufacturing and services sectors. Flash data, derived from 80-90% of total survey responses, aim to provide an early indication of the final data, released during the first week of the month.
The index is compiled from surveys sent to panels of around 400 manufacturers and 400 service firms. Survey responses, collected in the second half of each month, indicate the direction of change compared to the previous month. A reading above 50 indicates expansion, while a reading below 50 indicates contraction.