Services PMI gathers pace on new orders

Services sector activity accelerates in October to 54.5

A solid upturn in incoming new business helped push up growth in India’s manufacturing activity in October, the widely tracked Nikkei India Services Purchasing Managers’ Index (PMI) showed. 

After falling to 52 in September due to drop in new orders, PMI bounced back in October to 54.5 near — close to the 43-month high of 54.7 seen in August. The 50-point mark separates expansion from contraction. 

The order books also rose at a quicker pace, with growth climbing to a 22-month high. However, employment levels remained unchanged, a trend that has now continued for months in both the manufacturing and services. 

 

However, with October being part of the festive season, it remains to be seen whether this pace of growth will sustain. The crucial Index of Industrial Production figures are to come before the gross domestic product (GDP) figures for the second quarter of FY17 are released on November 30. India’s GDP grew 7.1 per cent in the first quarter of the current financial year, which was a six-quarter low growth rate. 

Orders placed with Indian service providers led companies to scale up activity in October. The upturn was supported by greater client requests and improved demand conditions. 

Survey data indicated that this placed pressure on firms’ capacity; as backlogs of work rose further, unfinished business volumes rose for the fifth consecutive month. Little changed since September, the overall rate of backlog accumulation was solid. A similar trend was seen among manufacturers, where  outstanding business showed a marked increase. 

“One underlying concern is the sustained stagnant trend in workforces, with both manufacturers and service providers showing some reluctance to hire. Hopefully, the added pressure on capacity shown in the PMI surveys will translate into job creation as we move towards the end of 2016,” said Pollyanna De Lima, economist at IHS Markit and author of the report. 

With service providers paying higher prices for petrol, input costs increased again, although at a marginal rate that was softer than in September. However, the survey pointed out that October saw cost inflation ease to a marginal pace that was much lower than the long-run series average. “In fact, less than two per cent of monitored firms reported rising cost burdens,” it said.

Within manufacturing, purchase price inflation reached a 26-month peak. Softer inflationary pressures assisted service providers with their pricing strategies. Amid reports of efforts to attract new customers, selling prices were left unchanged by 98 per cent of firms. Overall, a fractional reduction was recorded as the respective index recorded just below the no-change mark of 50.

Output prices, however, remained broadly unchanged. 

While remaining upbeat towards the 12-month outlook for activity, the overall level of sentiment for companies struck a four-month low. Those firms anticipating growth indicated that improved market conditions and aggressive marketing campaigns were expected to boost activity. Nevertheless, worries regarding fierce competition for new work restricted confidence. 

Released earlier this week, the manufacturing PMI data also showed the same spurt in growth with manufacturing activity touching a 22-month high in October. After falling to 52.1 in September, PMI rose to 54.4 in October. 

As a result, the seasonally adjusted Nikkei India Composite PMI Output Index rose from 52.4 in September to 55.4 in October. This pointed to a marked pace of expansion in private sector activity, which was the quickest in nearly four years. The index had seen a 42-month high of 54.6 in August, but the latest above-50 reading was the 16th in as many months, highlighting ongoing growth.