India's services PMI slips to 60.8 in April, below analyst projections

Services sector slips: India's services sector faced a setback in April as the HSBC final India Services Purchasing Managers' Index, compiled by S&P Global, declined to 60.8 from 61.2 in March. 

Contrary to expectations for an increase to 61.7, this unexpected dip surprised analysts. Despite the slip, the Indian services industry remained resilient, driven by strong domestic and foreign demand.

Favourable market conditions and robust demand propelled the new business sub-index to a three-month high, marking the third-highest level in approximately 14 years.

Domestic demand strong

Pranjul Bhandari, HSBC's chief India economist, stressed that service activity grew slightly slower in April, driven by a rise in new orders, particularly from domestic sources. However, new export orders, while robust, experienced a slight moderation compared to March.

Despite the slowdown in headline growth, the figure still reflects one of the fastest growth rates in nearly 14 years, with activity in the services sector remaining above the 50-mark, indicating expansion since August 2021.

However, despite the overall positive sentiment, job creation remained subdued, even though there has been continuous growth in employment for nearly two years.

Operating costs saw a notable increase due to higher raw material and labour costs, although the rate at which these costs were passed on to clients softened compared to March.

Inflation expectations favour rate cuts

According to an April Reuters poll, quarterly inflation in India is expected to average 5.0 per cent or below for the fiscal year, providing leeway for the Reserve Bank of India (RBI) to consider rate cuts. Economists anticipate a reduction of the key repo rate by 50 basis points before the end of the year.

The manufacturing index for April saw a modest decline to 58.8, contributing to a slight decrease in the overall Composite PMI to 61.5 from March's eight-month high of 61.8.

"In terms of overall activity, aggregate output across both the manufacturing and service sectors increased significantly in April, albeit at a slightly slower pace, indicating sustained health in these sectors," added Bhandari.

(With Reuters Inputs)