India May business growth robust as exports rise at record pace, PMI shows

By Anant Chandak

BENGALURU (Reuters) - Business activity in India expanded robustly in May, helped by the dominant services industry, according to a survey that also showed exports rising at a record pace and the sharpest job addition rate in nearly 18 years.

HSBC's flash India Composite purchasing managers' Index, compiled by S&P Global, rose slightly to 61.7 this month from April's final reading of 61.5, marking the 34th month above the 50-level separating growth from contraction.

"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," noted Pranjul Bhandari, chief India economist at HSBC.

The flash services PMI index rose to a four-month high of 61.4 this month from 60.8 in April and a preliminary manufacturing PMI showed strong growth, albeit slightly weaker than last month. It dipped to 58.4 from 58.8.

Robust demand was supported by new business in the services industry, which grew at the fastest pace since January, as well as rising manufacturing output and new orders.

Strong international demand meant overall exports expanded at the fastest rate since the start of the series in September 2014. It is the second time export growth has set a new high this year.

That boosted business confidence for the coming 12 months, especially in the services sector where it was the strongest since May 2013. Optimism among manufacturers was the highest in over nine years.

Underpinning the positive sentiment was an improvement in job creation across the private sector to the sharpest since September 2006. Services jobs were added at the fastest pace in 21 months.

A rise in employment would be positive for the Narendra Modi-led Bhartiya Janata Party at a time when the country is in the middle of a national election.

A recent Reuters poll said the biggest challenge for the new government would be unemployment.

Meanwhile, input prices at a composite level rose at a nine-month high and companies raised selling prices at a faster pace in May than April. However, not all of the increase in input costs was passed on to clients this month.

"Higher input costs in both sectors led to further margin squeezes, particularly for service providers," added Bhandari.

High costs could slow the downward path of cooling retail inflation, putting pressure on the Reserve Bank of India to keep interest rates elevated at its meeting in June before eventually cutting them next quarter, an earlier Reuters poll showed.

(Reporting by Anant Chandak; Editing by Kim Coghill)