New Delhi, May 24 (KNN) India's services sector powered a surge in private sector activity in May, driving the composite Purchasing Managers' Index (PMI) to 61.7 from 61.5 in April, according to a survey by HSBC released on Thursday.

This reading marked the third strongest increase in nearly 14 years for the composite PMI, which measures combined output of manufacturing and services.

The acceleration was driven by the services sector, which saw its steepest increase in business activity in four months. In contrast, factory production growth moderated to its slowest pace since February due to a slowdown in new orders and output.

"The services sector recorded a sharp increase in activity, the steepest in four months, while manufacturing sector growth slowed slightly in May," said Pranjul Bhandari, Chief India Economist at HSBC. She noted the rise was supported by services even as manufacturing expanded at a slower rate.

A bright spot was new export orders for both sectors rising at the fastest pace since September 2014. Optimism about the year ahead swelled to an 11-year high, prompting firms to ramp up hiring.

Employment across the private sector saw the steepest monthly rise since September 2006, with headcounts increasing for the 24th consecutive month. Capacity pressures intensified, with backlogs of outstanding work rising at the sharpest pace in 21 months.

However, higher input costs in both sectors led to further margin squeezes, particularly in services. Input price inflation hit a 9-month high amid rising costs for chemicals, food, plastics and components.

The flash PMI includes 75-85 per cent of the total PMI survey responses. Final manufacturing PMI data for May is due on June 3, with services and composite PMI released on June 5.

(KNN Bureau)