India’s services sector maintained a strong growth trajectory in May, with the

HSBC India Services PMI

inching up to 58.8 from April’s 58.7. The data indicated a steady pace of expansion in business activity and new orders, supported by sustained demand momentum.

One of the key highlights was a significant improvement in international demand, with firms reporting one of the sharpest increases in export orders in nearly 20 years of survey data. Demand from regions such as Asia, Europe, and North America was cited as a major contributor to this uptick.

To accommodate the sustained rise in new business, service providers significantly increased hiring, marking the strongest rate of job creation since the survey began. Around 16% of firms reported adding to their workforce, while only 1% noted a reduction, reflecting solid confidence in future demand. Other trends, such as rising input cost inflation, also aligned with patterns observed in the manufacturing sector during the same period.

Chief Economist at HSBC, Pranjul Bhandari, shared her views on the performance trends of the services PMI, stating, "To keep up with swelling demand, India’s service providers heavily increased staff recruitment. Indeed, the employment index rose to the highest reading ever recorded by this survey.”

“Meanwhile, price pressures continued to intensify with input prices and charged prices both rising last month”, she added.

Inflationary Pressures Intensify
Input costs and output charges climbed at a rate above their long-term averages, with firms pointing to higher expenses for items like cooking oil, meat, and other materials, along with increased staffing costs. Inflation reached its highest point in the current calendar year.

Capacity Pressures Ease Slightly

While workloads remained elevated, the rate of backlog accumulation eased to an eight-month low. This was attributed to the expansion in staffing capacity, which helped firms better manage outstanding business.

Business Sentiment Rebounds
After dipping to a 23-month low in April, business confidence improved in May. Companies cited expectations of higher capacity, expanded clientele, and planned marketing activities as factors likely to support future growth.

Composite PMI
The HSBC India Composite PMI® Output Index, which tracks combined activity in manufacturing and services, moderated slightly to 59.3 in May from 59.7 in April. While factory output growth softened, services continued to grow at a stronger pace, helping maintain overall economic momentum.

Movement of Services PMI