Services sector growth steady in May as demand remains strong, shows PMI

India's dominant services sector maintained its robust growth in May, fueled by strong export demand and record hiring, although price pressures intensified, a survey showed on Wednesday. 

The HSBC India Services Purchasing Managers' Index, compiled by S&P Global, stood at 58.8 in May, marginally up from April's 58.7 but lower than a preliminary reading of 61.2. 

It has been above the 50-mark separating growth from contraction for nearly four years. 

New business - a key gauge for demand - expanded at a sharp pace in May, largely aligned with growth rates seen from February through April. 

Companies attributed this sustained momentum to advertising efforts, positive demand trends and repeat business from existing clients. 

This healthy demand environment was particularly evident in international markets, with companies reporting one of the strongest increases in export orders in the survey's over a decade history. 

To accommodate the ongoing expansion, service providers ramped up hiring at the fastest rate since the survey began in 2005, with nearly 16 per cent of respondents increasing staff numbers. 

That, however, contributed to rising cost pressures. Both input costs and output charges increased at faster rates in May, edging above historical averages. 

Companies reported higher expenses for cooking oil, materials, meat and overtime payments, leading to the strongest input price inflation since January. 

Growing price pressures could test monetary policy decisions for the Reserve Bank of India (RBI), which has cut the repo rate by 50 basis points this year as inflation remains below its 4.0 per cent target. The RBI is expected to cut rates by another 25 bps to 5.75 per cent on Friday, according to a Reuters poll. 

Despite cost challenges, business confidence recovered from April's 23-month low, with companies expressing optimism about future growth based on their expanded workforces, larger client bases and ongoing marketing initiatives. 

Meanwhile, the HSBC India Composite PMI Output Index, which includes both manufacturing and services, eased slightly to 59.3 in May from 59.7 in April but indicated continued strong expansion in private sector activity. 

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