India's services sector experienced a significant boost in April, reaching a five-month high, as robust domestic demand and a strategic shift towards local suppliers helped offset the impact of the West Asia crisis.
Key Points
- India's services sector growth accelerated to a five-month high of 58.8 in April, as indicated by the HSBC India Services PMI Business Activity Index.
- The expansion was primarily fuelled by strong domestic demand and new orders, with firms shifting from international to domestic suppliers due to the West Asia crisis.
- International demand for Indian services weakened, attributed to the Middle East conflict and subdued inbound tourism.
- Operating expenses for service companies increased substantially, driven by higher costs for food, gas, and labour, though only part of this was passed on to customers.
- Despite cost pressures and geopolitical concerns, Indian services companies remain confident about future output, leading to increased recruitment of short-term staff.
India's services sector growth climbed to a five-month high of 58.8 in April with new orders and output expanding at quicker rates, as firms indicated a shift from international to domestic suppliers amid the West Asia crisis, a monthly survey said on Wednesday.
The seasonally adjusted HSBC India Services PMI Business Activity Index rose from 57.5 in March to 58.8 in April, showing the strongest rate of expansion since last November.
The HSBC India Services PMI Business Activity Index is based on a single question asking how the level of business activity compares with the situation the month before.
In the Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.
Domestic Demand Outweighs International Slowdown
According to survey participants, competitive pricing, e-commerce and particularly strong customer demand for relocation and logistic services boosted sales growth.
"India's services PMI climbed to a five-month high of 58.8 in April.
"Activity and new orders strengthened, even as new export orders eased, suggesting that demand is rotating from overseas markets to domestic consumers amid the Middle East conflict," said Pranjul Bhandari, Chief India Economist at HSBC.
International demand for Indian services lost strength. Companies indicated that the war in the Middle East and subdued inbound tourism dampened the expansion.
Cost Pressures and Future Outlook
Service companies reported another substantial increase in their operating expenses.
Despite slowing in April, the rate of inflation was one of the highest seen since November 2024.
Monitored firms cited food (cooking oil, eggs, meat and vegetables), gas and labour costs, as well as gas shortage.
However, only part of this additional cost burden was transferred to customers, as signalled by an increase in selling prices. The overall rate of charge inflation receded to a three-month low.
"Input cost inflation moderated but remained elevated, while output price inflation stayed subdued, indicating that some firms are absorbing higher costs rather than passing them on," Bhandari said.
Going ahead, Indian services companies were confident of a rise in output over the course of the coming 12 months.
However, the level of positive sentiment nevertheless fell from March, dampened by worries surrounding the West Asia crisis and cost pressures.
On the job front, companies recruited more workers at the start of the first fiscal quarter.
According to them, rising volumes of new business boosted the recruitment of short-term staff and junior-level trainees.
Composite PMI Performance
Meanwhile, the HSBC India Composite PMI Output Index was up from 57.0 to 58.2, signalling a historically strong rate of expansion, but the rise was among the slowest in around two-and-a-half years.
Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices.
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.
The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.
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