April services activity eased, but orders, output record robust rise

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The uptick in India's Services sector moderated in April, as per the seasonally adjusted HSBC India Services Business Activity Index which dropped to 60.8 from 61.2 in March, even as firms surveyed for the index reported strong inflows of new orders, including the second-highest surge in export deals in a decade. 

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New business orders and output growth remained sharp and among the fastest in 14 years. A reading of over 50 on the index, compiled by S&P Global, denotes expansion in activity. 

Services firms surveyed by S&P Global attributed April's upturn in output to favourable economic conditions, demand strength, and rising intakes of new work. Confidence levels about the year-ahead outlook improved to a three-month high.

Despite the growth in new orders, only a few firms indicated the appetite to take on new hires in April, with several firms reporting adequate manpower for current requirements. So new jobs were created at a marginal pace that was lower than that seen in March.

Finance and Insurance Services reported a steep growth in activity, while the Consumer Services segment witnessed the sharpest increase in input costs among services firms. Higher costs were reported for fruits, vegetables, and labour, triggering a continuing uptick in operating expenses through April. However, the pace of inflation was lower than March.

Robust demand enthused firms to pass on additional cost burdens to clients but the pace at which output prices were raised eased from the seven-year high rate recorded in March. "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," said Pranjul Bhandari, chief India economist at HSBC.

Seen together, Services and Manufacturing sector trends indicate that private sector sales rose at one of the fastest rates since mid-2010. The HSBC India Composite PMI Output Index stood at 61.5 in April compared with 61.8 in March. This was slightly lower than the 62.2 reading estimated by the Flash Purchasing Managers' Index (PMI), released earlier on the basis of responses from 75% to 85% of the 800 services and manufacturing players surveyed for these indices.