May Business Activity Increases as Exports Soar and the PMI Hits 61.7%

According to a poll, business activity in India grew strongly in May, driven by the country's leading services sector. Exports were also expanding at a record rate, and the country had the fastest rate of job creation in over 18 years.

This month, the final reading of the HSBC flash India Composite purchasing managers' index, which is calculated by S&P Global, increased marginally to 61.7 from 61.5 in April. This is the 34th month that the index has been over the 50-level that divides expansion from contraction According to HSBC's chief India economist Pranjul Bhandari, "the composite PMI ticked up further in May, recording the third strongest reading in close to 14 years, supported by a sharp acceleration in the service sector."

The preliminary manufacturing PMI indicated robust growth, albeit slightly weaker than last month, while the flash services PMI index increased to a four-month high of 61.4 this month from 60.8 in April. From 58.8 to 58.4, it decreased.

Strong demand was bolstered by increasing manufacturing production, new orders, and the services sector, which expanded at its quickest rate since January. Furthermore, robust demand from overseas caused global exports to grow at the quickest rate since the series' inception in September 2014. This year, export growth has reached a record thrice already.

This increased company confidence throughout the next year, particularly in the services sector where it reached its highest level since May 2013. It was the most optimistic time for manufacturers in more than nine years.

Positive optimism was supported by the strongest increase in job growth in the private sector since September 2006. The fastest rate of employment growth in 21 months was seen in the services sector In the midst of a national election, the Narendra Modi-led Bhartiya Janata Party would benefit from an increase in employment.

According to a recent Reuters survey, unemployment will be the incoming government's main problem.  In the meanwhile, businesses increased selling prices in May more quickly than in April, and input prices as a whole increased to a nine-month high. But not all of this month's rise in input prices was passed on to customers.

"Higher input costs in both sectors led to further margin squeezes, particularly for service providers," Bhandari stated. An earlier Reuters poll indicated that high prices may impede the decline in retail inflation, placing pressure on the Reserve Bank of India to maintain high interest rates at its June meeting before lowering them the following quarter.