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A sharp acceleration in the services sector has led to India’s private sector activity gathering pace in May, posting the third strongest surge in 14 years. The month under discussion also saw the steepest increase in job creation since September 2006, according to a survey released by HSBC on Thursday.
The headline flash composite PMI (Purchasing Managers' Index) rose to 61.7 compared with 61.5 in the previous month, the survey noted.
The index measuring the month-on-month change in the combined output of India's manufacturing and service sectors was inside the growth territory for the 34th consecutive month.
“When explaining the latest increase, survey participants cited successful advertising, efficiency gains, robust intakes of new work, and demand strength. Services firms recorded a sharp increase in business activity, the steepest in four months, while factory production rose at the slowest pace since February,” it said.
Pranjul Bhandari, the chief India economist at HSBC, said the composite PMI rose in May, recording the third strongest reading in close to 14 years, supported by a sharp acceleration in the service sector, even as the manufacturing sector growth slowed slightly in May, driven by a slowdown in new orders and production.
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“The rise in output in the manufacturing industry continued to surpass it in the services economy. Additionally, the latest data showed strength in the new export orders for both sectors, which rose at the fastest pace since the series began in September 2014. The level of optimism about the year ahead swelled to its highest in over 11 years, resulting in firms increasing their staffing levels. However, higher input costs in both sectors led to further margin squeezes, particularly for service providers," she added.
On the employment front, the survey noted that persistently strong increases in new orders underpinned job creation across the private sector as employment has been rising on a monthly basis in the past two years, with May seeing the steepest rise since September 2006.
“Another factor that supported the growth of headcounts was an intensification of capacity pressures. Combined across the manufacturing and service sectors, outstanding business volumes rose to the greatest extent in 21 months. In addition to taking on extra staff as a result of rising backlogs, Indian manufacturers also purchased additional materials for use in production processes,” it added.
The survey also noted that amid reports of higher labour and material costs, the input prices across the private sector rose at the fastest pace in nine months. There were mentions that prices for chemicals, food, plastics, electronic components, and electrical items had risen.
The Flash PMI records 75-85 per cent of the total 800 Purchasing Managers Index survey responses by services and manufacturing firms received each month.
The final manufacturing PMI headline figure for May will be released on June 3, which is projected to slide to 58.4. The services and composite PMI will be released on June 5.
Composite PMI Output Index
Source: HSBC
