Key factors why India's services sector growth rose in June

India's services sector growth quickened in June from May's five-month low, amid a stronger rise in new orders and an unprecedented expansion in international sales, a monthly survey said on Wednesday.

The seasonally adjusted HSBC India Services Business Activity Index rose from 60.2 in May to 60.5 in June, pointing to a sharp expansion in output.

In the Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"Activity growth in India's service sector accelerated in June, with the index rising by 0.3 ppt (percentage point) to 60.5, led by an increase in both domestic and international new orders.

"This encouraged services firms to increase their staffing levels at the fastest pace since August 2022," said Pranjul Bhandari, Chief India Economist at HSBC.

Demand strength and rising intakes of new business were cited as the key determinants of growth.

New orders received by Indian service providers continued to increase in June, extending the current sequence of expansion to nearly three years.

There was also a record expansion in international orders. Asia, Australia, Europe, Latin America, the Middle East and the US were all cited as sources of new work from abroad.

Positive client appetite encouraged service providers in India to recruit additional staff at the end of the first fiscal quarter.

Staffing levels increased at the fastest pace since August 2022, as short-term and permanent staff were taken on to support pipelines of new work.

On the price front, service providers recorded a moderate increase in their average expenses due to higher food, fuel and labour costs.

The pace of inflation was nevertheless the weakest in four months.Subsequently, selling prices also rose at the slowest pace since February.

Going ahead, service providers remained confident of a rise in business activity over the course of the coming 12 months, with nearly 23 per cent of panellists expressing optimism.

"Input costs rose at a moderate pace, resulting in a softer uptick in output charges in June.

"Overall, service providers remain confident about the year ahead business outlook, although the level of optimism moderated sharply during the month," Bhandari said.

Meanwhile, the HSBC India Composite Output Index recovered from 60.5 in May to 60.9 in June, as new business and output expanded at faster rates.

"The Composite PMI also accelerated in June, supported by greater inflows of new orders.

"Manufacturing firms contributed more to the expansion than services firms," Bhandari said.

Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices.

Private sector employment expanded at a sharp pace that was among the quickest since the series started in December 2005, the survey said.

The HSBC India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.