Business momentum in India’s services sector was steady in May. The seasonally adjusted HSBC India Services PMI Business Activity Index rose to 58.8 last month from 58.7 in April. A reading above 50 indicates expansion.
The key highlight of the survey was the solid growth in exports of services. The New Exports Orders sub-index rose to 57.6 in May from 55.4 in April. Survey participants reported one of the strongest improvements in international demand in 19-and-a-half years of data collection.
For manufacturers as well, new export orders rose in May at one of the strongest rates recorded in three years. Panel members remarked on favourable demand from Asia, Europe, the Middle East and the US. But here’s a catch.
“In H1 2025, Asian economies have been whipsawed by Trump tariffs; growth and inflation have moderated, even as export frontloading has provided some offset,” Nomura Global Markets Research said in a report dated 2 June.
According to Nomura, disinflationary forces are likely to permeate across Asia, and, unlike past export downturns, this is likely to be compounded by Asian currency strength against the US dollar. Thus, Asian central banks will likely continue to decouple from the US Federal Reserve and deliver more policy easing.
In its meeting this week, the Reserve Bank of India is widely expected to cut repo rates by another 25 basis points (bps) to 5.75%. So far, the central bank has cut rates by 50 bps to boost growth amid easing inflation.
Relatively immune
The Indian economy is more domestically driven, with consumption seen as the mainstay for growth. This makes India relatively immune to global trade shocks than Asian peers, but the problem is that consumption demand, especially urban, has been languishing lately.
Companies are struggling with subdued revenue and profit growth, household incomes are muted and latest high-frequency data such as automobile sales is uninspiring.
Meanwhile, business confidence of Indian service providers measured via the Future Output Index recovered to 60.4 in May from April’s 23-month low of 59.7. Expanded workforces, larger client bases and ongoing marketing initiatives make service providers hopeful.
According to Gaura Sengupta, economist at IDFC First Bank, India’s services export growth outperformed merchandise export growth in FY25 also, growing in double-digits. While this outperformance is likely to continue in FY26, she said some moderation in services export growth is likely with the US economy expected to slow down. That said, the manufacturing sector will be impacted more by the tariff tensions and the global growth slowdown.
