India’s Services Sector Hits 10-Month High in June Amid Strong Demand from Asia, West Asia, US

India’s services sector ended the first quarter of current financial year on a strong note. The HSBC India Services Purchasing Managers’ Index (PMI) rose to 60.4 in June from May's 58.8 level—the highest reading since August last year. The performance was buoyed by firm domestic demand and continued growth in overseas orders, according to survey data released by S&P Global on Thursday.

Service providers reported a pick-up in new work, with firms citing improved demand conditions at home and abroad. New export orders increased as well, although at a slower pace compared to earlier months. Businesses reported stronger interest from Asian, West Asian and US clients.

“"The Services PMI business activity index was up to a ten-month high, led by a sharp rise in new domestic orders. New export orders also expanded, albeit at a softer pace. Margins improved, as the rise in input costs was below that seen for output charges. Service providers remained optimistic about future growth, though their confidence faded a tad,” said Pranjul Bhandari, Chief India Economist at HSBC.

The data showed broad-based growth across sub-sectors, with finance and insurance leading the expansion. Real estate and business services were the laggards.

The ongoing expansion of the Indian service sector had a positive impact on recruitment. Employment rose for the thirty-seventh consecutive month in June, with the rate of job growth outpacing its long-run average despite slowing from May's record.

The rate of input cost inflation across India's service economy eased to a ten-month low in June, and was below its long-run average. Where expenses increased, panel members commonly cited greater staff salaries and wages.

Despite the robust activity, overall confidence among firms dipped slightly. Only 18% of respondents said they expect higher business activity over the coming year—the lowest share since mid-2022.

The strength in services also lifted the HSBC India Composite PMI, which covers both manufacturing and services, to 61.0 in June from 59.3 in May—signalling the fastest rate of private sector expansion in over a year.

The PMI survey, based on responses from around 400 services companies, suggests that domestic demand remains a strong pillar of the Indian economy at the end of the first fiscal quarter.