HSBC India Services Business Activity Index rises to 17-month peak

Indian private sector output rises solidly in June 2014

Adjusted for seasonal factors, the HSBC India Composite Output Index rose to a 16-month high of 53.8 in June. Up from 50.7 in the prior month, the latest reading was consistent with a solid pace of growth. Output increased at faster rates in the manufacturing and service sectors, with growth strongest in the latter.

Rising from 50.2 in May to 54.4 in June, the seasonally adjusted HSBC Services Business Activity Index was at a 17-month peak. The latest reading was indicative of a solid rate of expansion. Moreover, the index averaged 51.1 in the second quarter of the year, an improvement from Q1's average of 48.2 and the highest quarterly reading since Q2 2013. Evidence from survey participants pointed to stronger new business inflows and better economic conditions. Output expanded in four of the six monitored categories. The fastest rises were seen in the Post & Telecommunication and Renting & Business Activities sectors.

Incoming new orders in the service sector increased for the second consecutive month in June. Having accelerated to the quickest since February last year, the pace of growth was solid. Where new business rose, this was linked to improved underlying demand. New work intakes across the private sector as a whole also expanded at the strongest rate since February 2013.

Services employment was broadly unchanged from the levels seen in May, with the index measuring workforce numbers registering only fractionally above the crucial 50.0 threshold in June. Payroll numbers in the private sector increased at a marginal pace.

Meanwhile, services confidence regarding output levels in the coming year remained positive in June, with optimism at its strongest since May 2013. The end of the elections, planned increases in marketing budgets, forecasts of stronger demand and ongoing improvements in India's economy were the main factors cited by survey respondents as opportunities for activity growth over the next 12 months.

Commenting on the India Services PMI survey, Frederic Neumann, Co-Head of Asian Economic Research at HSBC said, After months of subdued activity, the Modi wave has struck the service sector and lifted growth to a 17-month high. New business flows and stronger business sentiment supported the rise. Some of this is simply pent up demand being unleashed. As we move along, faster reforms due to political stability should fuel the momentum. Be sure to expect some bumps along the way, as tensions in the Middle East and the absence of monsoon clouds play spoil sport."

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