Services activity rises, employment growth improves to fastest since March 2011: Nikkei India Services PMI

Nikkei India Services Business Activity Index rises to 51.4 in April 2018 from 50.3 in March 2018

India's service sector continued to improve at the start of the quarter, with business activity rising at a faster pace, supported by new order growth. Reflecting improvements in demand conditions, job creation accelerated to the sharpest since March 2011. Inflationary price pressures continued to ease further, with input and output charge inflation registering below their respective historical averages.

The seasonally adjusted Nikkei India Services Business Activity Index rose from 50.3 to 51.4 in April. This signalled a faster expansion in output at Indian service firms than in the prior month. According to anecdotal evidence, greater inflows of new work helped to bolster activity. However, the latest upturn was modest and remained weaker than the series trend.

The seasonally adjusted Nikkei India Composite PMI Output Index rose from 50.8 to a three-month high of 51.9 in April, driven by faster output growth in both the manufacturing and service sectors. The latest reading was consistent with a modest rise in overall business activity.

April data pointed to higher order book volumes across India's service sector. Although modest, the latest expansion accelerated from the preceding month. Favourable demand conditions were behind the latest rise, according to anecdotal evidence.

New orders placed at Indian manufacturers rose for the sixth successive month during April. Despite being modest, the rate of growth quickened. There were reports of stronger market demand supporting new client wins.

Outstanding business at service companies continued to increase during April. Despite softening from the prior month, the pace of accumulation was solid.

Negating the decline in March, India's manufacturing sector reported a rise in backlogs, albeit only marginally.

Reflective of improvements in demand conditions and greater output requirements, service companies raised their staffing levels during April. Furthermore, job creation was solid and accelerated to the strongest in over seven years.

Meanwhile, the manufacturing sector reported a renewed rise in staffing levels. That said, the rate of growth was marginal. Favourable demand conditions stimulated recruitment, according to anecdotal evidence.

As has been the case since September 2016, cost burdens faced by the service sector rose in April. Respondents mainly linked higher raw material costs to increased prices for food and transport. However, inflation moderated for the second month in a row and was the weakest since August 2017. Real Estate & Business Services registered the sharpest rise in input costs.

Indian manufacturing companies also recorded easing inflationary pressures, with input costs rising to the weakest degree since September 2017.

Meanwhile, service sector output prices also rose at a modest pace in April. Moreover, inflation was the slowest in 2018 so far. The pass through of higher cost burdens to clients led to higher output charges, according to panellists.

At the same time, manufacturing companies raised their output charges for the ninth consecutive month in April. However, the latest rise was modest and eased to the weakest since July 2017.

Firms operating in the service sector remained confident towards the 12-month outlook for output in April. Expectations of further improvements in economic conditions was the key factor that supported confidence, with around 23% of the survey panel forecasting growth. However, the level of sentiment remained below the series trend.

At the same time, the degree of optimism across India's manufacturing sector was the strongest recorded since the implementation of the Goods and Services Tax in July 2017 amid reports of anticipated improvements in demand conditions.

Commenting on the Indian Services PMI survey data, Aashna Dodhia, Economist at IHS Markit, and author of the report, said: "It was encouraging to see the Indian service economy report a positive start in the April quarter, with output growth gaining momentum as demand conditions improve. Subsequently, the best round of job creation since March 2011 was registered within the sector.

"India's overall economy also saw price pressures moderating further, with input and output charge inflation registering at the slowest since September 2017 and June 2017 respectively.

"The service economy continued to recover further from February's temporary decline. However, as the service economy contributes a greater proportion to real GDP, and continued to be outperformed by its manufacturing counterpart, overall private sector growth was only modest and below the historical trend."

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