India Services PMI Expands, Business Confidence Buoyant

The May 2013 data indicates an increase in the new work orders in the private sector. According to industry players, the demand is strong and several new orders were also launched in the month.

Indian services sector grew at its fastest rate for May 2013 as compared to the last four months, over a robust business confidence. The HSBC Market Purchasing Managers Index (PMI) for May 2013 stood at 52 against 50.5 in April 2013.

A reading above 50 indicates an expansion while that below 50 indicates contraction. The May numbers indicate fastest pace of business activity from February 2013. Growth, however, remains weak when compared to the reading of over 60 reported in 2010. The current expansion indicates a 49-month period of expansion.

As per HSBC, the Services Business Activity Index for May 2013 stood at 53.6, up from 50.7 in April 2013, indicating a solid expansion in the output.

Overall, the May data indicates an increase in the new work orders in the private sector. As per the industry players, the demand is strong and several new orders were also launched in the month. Manufacturers however have reported tough market conditions and increased competition. Power and water shortages were also seen in this period. The service providers have also reported delayed payments from customers.

On the employment front, the data has pointed towards a slight rise in job creation, extending the positive streak to 15 months in a row. A moderate rise in job creation was found in both manufacturing and services sectors.

The prices of products rose marginally in May 2013. The prices of oil, chemicals and machinery spare parts increased while that of plastics and metals fell. Private firms, however, attempted to pass on the rise in prices to their customers.

As per HSBC, optimism is buoyant in the services sector. The business sentiment has turned positive to a five-month high and firms are expecting better economic conditions with increased marketing activity.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC on the India Services PMI said, “Service sector activity picked up pace in May led by firmer order flows. Moreover, companies were more optimistic about the domestic and global economic outlook. Notwithstanding the uptick in growth, inflation gauges eased further on the back of strong competition and moderating cost pressures. With growth still moderate and inflation softening, the probability of another RBI rate cut has increased.”