PMI: India's services activity touches an eleven-year high of 59.2 in June

The jump in the services PMI corroborates the view that the services sector will lead the growth recovery in FY2023, says Aditi Nayar of Icra

India’s services activity expanded at the fastest pace in eleven years in June 2022. Rising from 58.9 in May to 59.2 in June, the seasonally adjusted S&P Global India Services PMI Business Activity Index was at its highest mark since April 2011.

The June data pointed to further accelerations in new business growth and output at Indian services companies amid ongoing improvements in demand conditions. Although firms expect the recovery to be sustained over the coming 12 months, concerns surrounding price pressures restricted business confidence. Input costs continued to rise at a historically elevated pace, although one that was the slowest in three months, while charge inflation hit a near five-year high.

According to S&P, unrelenting inflation continued to concern businesses, who were cautiously optimistic about the year-ahead outlook for business activity. The overall level of sentiment was well below its long-run average as only 9 per cent of companies forecast output growth.

For the eleventh straight month, the services sector witnessed an expansion in output. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

"Demand for services improved to the greatest extent since February 2011, supporting a robust economic expansion for the sector over the first quarter of the fiscal year 2022/23 and setting the scene for another substantial upturn in output next month," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

The jump in the services PMI corroborates our view that the services sector will lead the growth recovery in FY2023. Middle-to-high income households are likely to prioritise spending on contact-intensive services that were avoided during the pandemic at the cost of consumer durables. This is likely to result in a slower improvement in capacity utilisation levels, modestly delaying the private sector capex plans amidst the global headwinds and elevated commodity prices", said Aditi Nayar, Chief Economist, Icra.

On the job front, some companies responded to capacity pressures by hiring additional staff in June, but the vast majority (94 per cent) left payroll numbers unchanged. Overall, services employment rose marginally, following a decline in May.

Meanwhile, the S&P Global India Composite PMI Output Index -- which measures combined services and manufacturing output -- was at 58.2 in June, little changed from 58.3 in May.

"Growth of Indian private sector output steadied in June, as a faster increase in services activity offset a slower rise in factory production," the survey said.