India's services PMI sees second-highest in 13 years

India's services sector growth eased slightly in May, but registered the second-strongest rate of growth in close to 13 years, on favourable demand conditions and new client wins, a monthly survey said on Monday.

The seasonally adjusted S&P Global India Services PMI Business Activity Index fell from 62 in April to 61.2 in May. Despite falling from April, the latest reading indicated that output increased at the second-quickest pace since July 2010.

For the 22nd straight month, the headline figure was above the neutral 50 threshold. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

"The PMI data for May stand as a compelling testament to prevailing demand resilience, impressive output growth and job creation within India's dynamic service sector," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Additionally, monitored companies expanded their workforces to accommodate for higher intakes of new work.

Going ahead, services companies maintained an upbeat view that business activity would increase over the coming 12 months.

"Advertising, demand strength, and favourable market conditions were among the reasons cited for optimistic forecasts," the survey said.

Meanwhile, the S&P Global India Composite PMI Output Index, which measures combined services and manufacturing output, stood at 61.6 in May, unchanged from April.

"India's private sector built on the strong momentum recorded in April by posting a rate of expansion in business activity that was the joint-best in just under 13 years," the survey said.

On the price front, Indian service providers reported higher food, input, transportation and wage costs in May. Amid reports of rising cost burdens, firms charged more for their services in May.

"While ongoing increases in output charges could erode purchasing power, affect the affordability of services and potentially dampen economic growth, companies could be seeking operational efficiencies and exploring alternative sourcing options to navigate through these challenges," Lima said.

A meeting of the six-member Monetary Policy Committee (MPC), headed by Reserve Bank Governor Shaktikanta Das, is scheduled for June 6-8. The decision of the 43rd meeting of the MPC would be announced on June 8.

After the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5% repo rate. Prior to that, the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.

"With policymakers closely monitoring inflation developments, long-waited cuts to interest rates which could aid business strategies, budgeting and investment plans appear more distant," Lima said.

The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in December 2005.