May PMI shows India's strong growth in business, exports hit record pace

May PMI shows India's strong growth in business, exports hit record pace

India's business sector is seeing strong growth, with May showing a robust expansion, particularly in the services sector, according to a recent survey.

The HSBC's flash India Composite Purchasing Managers' Index (PMI), put together by S&P Global, stood at 61.7 this month from April's 61.5, marking the 34th consecutive month above the 50-level, which separates growth from contraction.

"The composite PMI continued to rise in May, reaching the third strongest reading in nearly 14 years, backed by a sharp pick-up in the service sector," said Pranjul Bhandari, HSBC's chief India economist.

The flash services PMI index hit a four-month high of 61.4 this month, up from April's 60.8, while the preliminary manufacturing PMI showed strong growth, albeit a tad weaker than last month, dipping to 58.4 from 58.8.

The increase in business activity was fuelled by new business in the services industry, growing at the quickest rate since January, alongside rising manufacturing output and new orders.

The surge in international demand drove overall exports to expand at the fastest pace since September 2014, marking the second time export growth has hit a new high this year.

This upbeat outlook boosted business confidence for the next 12 months, particularly in the services sector, where it reached its highest level since May 2013. Manufacturers' optimism was also at its peak in over nine years.

This positive sentiment was accompanied by an improvement in job creation across the private sector, reaching its sharpest level since September 2006. The services sector saw the fastest pace of job additions in 21 months.

Meanwhile, input prices rose to a nine-month high at a composite level, with companies raising selling prices at a quicker pace in May compared to April. However, not all the increase in input costs was passed on to clients this month.

"Higher input costs led to further margin squeezes, especially for service providers," Bhandari told Reuters.

The hike in costs could slow the decline in retail inflation, pressuring the Reserve Bank of India to maintain elevated interest rates at its June meeting before potentially cutting them in the next quarter, as per an earlier Reuters poll.