Services sector begins new fiscal on strong note

The services sector began the new fiscal year on a strong note, buoyed by robust exports and a sharp growth of new business and output that was among the fastest in 14 years, a private survey showed.

The HSBC India Purchasing Managers Index (PMI) fell to 60.8 in April from 61.2 the previous month. A reading above the 50-mark denotes expansion.

“India’s service activity rose at a slightly softer pace in April, backed by a further rise in new orders, with a notable strength in domestic demand. Although new export orders remained robust, they showed a slight moderation from March figures,” Pranjul Bhandari, chief India economist at HSBC, said. 

“In response to increased new orders, firms expanded their staffing levels, though the pace of hiring growth decelerated. Input costs continued to rise sharply, albeit slower than in March, but resulted in squeezed margins for service firms, as only part of the price rise was passed on to clients through output charges,” Bhandari said. 

Overall confidence among service providers for the year-ahead outlook improved markedly, bolstered by resilient demand conditions. In terms of overall activity, aggregate output across both the manufacturing and service sectors rose significantly in April, albeit at a slightly slower pace, indicating sustained health in these sectors, he added.

In addition to buoyant domestic demand, firms noted new business gains from several parts of the world, which collectively underpinned the second-quickest upturn in international sales since the series started in September 2014, the survey said.

Businesses raised their prices due to wage pressures and higher food prices, but the rate of increase slowed down compared to the previous month’s near seven-year high. 

Total new orders continued to rise at a stronger run rate than exports. The surge in overall sales was sharp, well above its long-run average and among the strongest in 14 years, the survey said.

Amid reports of higher input, especially fruits and vegetables, and labur costs, operating expenses continued to increase in April. The overall rate of inflation pulled back since March and was broadly aligned with its long-run average.

Buoyed by rising inflows of new business, a few service providers in India showed an increased appetite for new hires in April. That said, with several companies indicating that payroll numbers were sufficient for current requirements, the rate of job creation was marginal and softer than that seen at the end of the previous fiscal year.

Confidence among service providers towards the year-ahead outlook for business activity improved to a three-month high. Marketing efforts and efficiency gains, alongside plans to price competitively and predictions that demand conditions will remain favorable, boosted optimism, the survey added.