HSBC India Services PMI rises 50.2 in May, showing first expansion of output in 11 months

The headline HSBC Services Business Activity Index posted 50.2 in May, rising from April's reading of 48.5 and pointing to the first expansion of output in 11 months. That said, the latest increase in activity was only marginal and weak in the context of historical data. Divergent trends were seen at the sub-sector level, with only Post & Telecommunication and Renting & Business Activities registering higher output.

Supporting the rise in services activity was a rebound in new orders. The rate of expansion in incoming new work was, however, slight overall. Survey participants commented on a general improvement in client demand, but there were reports that growth was hampered by the elections. Order book volumes placed with manufacturers also rose, leading to higher new business across the private sector as a whole.

Indian service providers were optimistic in May that activity would increase over the next 12 months. Marketing campaigns, the end of the elections and the launch of new services are expected to promote new business growth, and therefore output. Nevertheless, the degree of positive sentiment was unchanged since April.

Input costs faced by service providers in India continued to rise in May. Anecdotal evidence suggested that higher raw material and fuel bills had been the main drivers of increasing input prices. Nonetheless, the rate of cost inflation eased to the weakest since July 2013. Purchase prices at manufacturers rose at the slowest pace in one year. Subsequently, cost inflation across the private sector as a whole dropped to a one-year low.

Prices charged by services companies increased for a forty-third consecutive month in May, with panellists citing the pass-through of higher input costs. However, as with the trend for input prices, the rate of charge inflation moderated to the slowest since last July. Average tariffs set by private sector companies rose at the weakest pace in eight months.

May data indicated that staffing levels in the Indian private sector were broadly unchanged. Workforce numbers increased at manufacturing firms, but stagnated in the service economy.

Work-in-hand at service providers rose for the third month running in May, amid evidence of cashflow difficulties. Furthermore, the rate of accumulation was solid and the joint-strongest in the history of the survey. Backlogs of work across the private sector increased at the sharpest pace since December 2012.

Up from 49.5 in April to 50.7 in May, the seasonally adjusted HSBC India Composite Output Index indicated growth of activity for the first time in three months. The rate of expansion was, however, slight overall and well below the series average. Higher output was noted at manufacturing and services companies.

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