Business activity contracts in February: Nikkei India Services PMI

Nikkei India Services Business Activity Index fell from 51.7 in January to 47.8 in February

Business conditions in India's service sector deteriorated modestly in February. Activity and new work declined for the first time since November, with rates of contraction the fastest since August. Firms remained confident towards output growth over the next 12-months as jobs growth quickened to the joint-fastest since June 2011. On the price front, input cost inflation accelerated to the strongest since November, while charges were raised to the greatest extent since July.

The seasonally adjusted Nikkei India Services Business Activity Index fell from 51.7 in January to 47.8 in February, its lowest level since August. The headline figure signalled the first fall in output for three months, but one that was modest. Panellists commented that poor underlying demand conditions had weighed on activity.

 

The seasonally adjusted Nikkei India Composite PMI Output Index fell from 52.5 in January to 49.7 in February, as the fall in service sector activity outweighed an upturn in manufacturing production. This index was consistent with a marginal decline in overall output.

The level of new business placed with Indian services firms reduced in February, thereby ending a two-month period of expansion. Although modest, the rate of contraction was the fastest since August. According to panellists, new work decreased in tandem with weak market demand and competitive conditions.

New orders rose for the fourth consecutive month in India's manufacturing sector. According to anecdotal evidence, improved underlying demand was the key reason behind greater volumes of new business. That said, the rate of expansion was modest and the weakest in the current sequence.

Service providers remained optimistic towards the 12-month outlook for output. Business confidence was underpinned by expected improvements in demand, according to anecdotal evidence. Nonetheless, the level of positive sentiment fell slightly in February and was below the series average.

Despite unfavourable demand conditions, service providers raised their staffing levels during February. Furthermore, job creation accelerated to the joint-strongest since June 2011. Jobs growth reflected positive projections for output growth, according to survey respondents.

Manufacturers raised their payroll numbers for the seventh consecutive month during February. Although modest, the pace of employment was among the strongest in the context of historical data.

Meanwhile, backlogs of work increased across India's service sector for the twenty-first consecutive month during February. Panellists reported that delayed payments was the key factor behind greater work-in-hand. That said, the rate of accumulation slowed to the weakest since November and was modest.

Manufacturing companies also reportedly faced higher backlogs during February. Despite being modest, the rate of accumulation accelerated to the strongest since October 2016.

Amid reports of greater fuel prices, service providers faced greater cost pressures. Furthermore, input cost inflation quickened to the strongest since November and was marked.

Meanwhile, manufacturing companies faced greater input costs for the twenty-ninth consecutive month in February. Furthermore, the rate of inflation quickened to the fastest since February 2017 and was sharp.

As parts of attempts to pass through higher cost burdens to clients, service providers raised their output charges at the fastest pace since July (though inflation remained modest).

Meanwhile, manufacturing companies increased their average selling prices for the seventh month in succession in February. Though modest, output price inflation was the sharpest since last February.

Commenting on the Indian Services PMI survey data, Aashna Dodhia, Economist at IHS Markit, and author of the report, said: "Both activity and new work declined for the first time since November, with rates of contraction the strongest since August, thereby ending the recent recovery experienced by India's service sector. Anecdotal evidence pointed to weak underlying demand conditions in the service economy.

"However, firms seem to believe that the decline is transitory as they raised their staffing levels at the joint-fastest pace since June 2011, in line with positive projections of activity growth.

"Overall, growth of manufacturing output was outweighed by a modest decline in service activity. Meanwhile, an imminent risk to firms margins are greater fuel prices which materialised into the fastest input cost inflation in the overall economy (manufacturing and services) since July 2014."

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