India’s Services Sector Grows Slightly in April, But Optimism Drops To Two-Year Low

Growth in the Indian services sector increased slightly in April after March's slowdown as demand expanded robustly, although optimism was its weakest in approximately two years, a survey showed on Tuesday.

According to the HSBC India Services Purchasing Managers' India Services Purchasing Managers' Index (PMI), compiled by S&P Global, rose marginally to 58.7 in April from 58.5 in March, lower than a preliminary estimate of 59.1.

PMI readings which are above 50.0, illustrate growth in activity, while those which are below that level point towards a reduction in activity.

Demand Growth In April

In April, a key gauge of demand increased sharply, along with new business volumes, just like it did in the previous two months. International demand also strengthened considerably as export orders expanded at the fastest rate since July 2024.

Among the sectors that performed the strongest, were finance and insurance, which recorded the highest growth rates for both output as well as new orders.

In order to meet increasing client demand, service providers boosted their workforce numbers for a 35th month consecutively.

Additionally, the rate of job creation also increased from March and exceeded the long-term average.

"New export orders gained momentum after taking a breather in March, accelerating at its fastest pace since July 2024. Margins improved as cost pressures eased and prices charged rose at a faster pace," Pranjul Bhandari, chief India economist at HSBC said.

In terms of prices, input cost inflation eased to its lowest in six months. Companies also took advantage of strong demand conditions to pass on costs, while also increasing their selling prices in March at a quicker pace.

The Reserve Bank of India (RBI) has received headroom to lower the key repo rate by 50 basis points (bps) this year with a few more cuts which are expected in the upcoming months.

Business Optimism Drops

Despite all these factors, business sentiment fell for a fifth straight month, and it is now at its lowest level since mid-2023, with increasing competition dampening optimism.

HSBC India Composite PMI includes both manufacturing and services, which rose to 59.7 in April from 59.9 in March, making the strongest expansion in private sector activity since August.

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