Services sector expands for first time in a year

The Indian economy may be on the mend with the services sector accounting for the largest chunk of activity and staging a bounce-back in May, according to an HSBC survey.

The HSBC Services Purchasing Managers Index (PMI) crept above the 50 mark — a level that separates expansion and contraction — after nearly a year, signalling that the economy was moving in the right direction.

Business activity as measured by the PMI grew to 50.2 in May from a level of 48.5 in April, pointing at improvement in services sector activity.

In May, there was a sharp up-tick in new business flows at 50.5 against 48.5 in April.

Narendra Modi and his Bharatiya Janata Party’s recent electoral win is expected to add further strength to economic recovery as improved sentiments would further drive up activity in the services sector.

But don’t expect soaring growth and RBI could yet hike policy rate one more time, HSBC said in a research note.

It is important to be realistic about the pace at which the economy could turnaround, it added.

“PMIs indicate a gradual improvement in services activity, with the index creeping above the 50 level after nearly a year. The election result should add further strength to the recovery, but don’t expect soaring growth,” said Frederic Neumann, HSBC Co-head of Asian Economics Research.

Earlier this week, the HSBC/Markit manufacturing PMI showed that the sector inched up in May driven by higher domestic and export orders.

Composite Output Index Accordingly, the HSBC India Composite Output Index, which maps both services and manufacturing, posted 50.7 in May, up from 49.5 in April, indicated overall growth for the first time in three months.