India's services purchasing managers' index (PMI) hit a four-month high of 61.4 in May 2024, up from 60.8 in April 2024, indicating a sharp rise in business activity for services companies, the steepest in four months, as factory output rose slower than it has been since February. India's composite PMI rose to 61.7 in May 2024, a marginal jump from 61.5 in April. This is the 34th consecutive month that the index has remained above the 50 mark. Nevertheless, the manufacturing sector continued to experience stronger growth than the services sector.

The Indian manufacturing sector production index PMI witnessed an upward trend and reached 62.4 compared to 63 in April. However, the Indian manufacturing index saw a slight decline and fell to 58.4 in May 2024, according to data compiled by S&P Global. The Indian manufacturing index is a compressed assessment of the health of factory companies derived from factors such as new orders, production, employment, supplier delivery times and purchase inventories, which declined from 58.8 in April to 58.4 in May. While this shows the weakest improvement in the sector in three months, it remains robust compared to historical benchmarks.

The PMI tracks monthly fluctuations in overall output of India's manufacturing and services sectors and is compiled by S&P Global.

In the May survey, there was an unprecedented increase in total exports, the sharpest increase in private sector employment since September 2006 and a significant improvement in business confidence. However, rising input costs led to higher prices for Indian goods and services.

The report highlights signs of strength in new export orders in both the manufacturing and services sectors. At the aggregate level, exports grew at the fastest pace since the data series began in September 2014. At the same time, total new orders rose sharply, with the pace of expansion similar to that seen in April and among the fastest since mid-2010. Although manufacturing firms experienced a slowdown in their growth rate, they still outperformed their service firms in terms of growth rate.

Pranjul Bhandari, chief India economist at HSBC, said: “The composite PMI continued to rise in May, recording the third strongest reading in nearly 14 years, helped by a strong acceleration in the services sector. However, growth in the manufacturing sector slowed slightly in May.” Manufacturing output growth continued to outpace that in the services sector, due to a slowdown in new orders and production.

He says the latest data shows strength in new export orders for both sectors, which have risen at the fastest pace since the series began in September 2014. “Optimism for the year ahead has risen to its highest level in over 11 years, which has led to further margin squeezes in both sectors, however, higher input costs have led to further margin squeezes, particularly among service providers.