Nikkei India Services Business Activity Index rises to 51.9 in July 2016
Indian service providers enjoyed a welcome upturn in demand during July, with a faster increase in new business underpinning stronger growth of output and boosting confidence. Part of the upswing in incoming new work was supported by price discounts. Output charges were lowered for the first time in nine months, while input costs also decreased.At 51.9 in July, the seasonally adjusted Nikkei India Services Business Activity Index posted above the no-change mark of 50.0 for the thirteenth month running, highlighting ongoing growth of output in the sector. Up from 50.3 in June, the headline index was at a three-month high and indicative of a modest rate of expansion.
With growth of manufacturing production also quickening, the seasonally adjusted Nikkei India Composite PMI Output Index climbed to a three-month high of 52.4 in July (June: 51.1). This reading was consistent with a moderate increase in private sector activity overall.
Leading services output to rise was a further expansion in incoming new business, one that was the most pronounced since April. According to survey participants, the upturn was supported by successful price negotiations with clients as well as improved marketing campaigns. Manufacturing order books increased at the quickest pace since March.
Employment was broadly unchanged in both the manufacturing and service sectors during July, as indicated by the respective indices recording only fractionally above the crucial 50.0 threshold. It has now been over two-and-a-half years since the private sector has seen meaningful job creation.
Amid reports of lower prices paid for fuel and some commodities, average input costs facing service providers fell in July. The decrease was the first since September 2015 and the rate of reduction was slight overall. Conversely, purchasing costs at goods producers continued to rise, although the rate of inflation softened to a five-month low.
Lower services costs were passed on to clients as indicated by an overall decline in selling prices, the first in nine months. However, output charges fell at only a slight pace as the vast majority of survey respondents signalled no change in prices charged. By comparison, factory gate prices rose at a slight pace, which was nevertheless the quickest since April.
July data highlighted a second successive monthly increase in unfinished business volumes at Indian service providers. The rate of accumulation was moderate, but above the long-run survey average. At manufacturers, work-in-hand rose at the fastest pace in one-and-a-half years. Higher backlogs were linked by private sector firms to delayed payments from clients.
Business sentiment among Indian service providers improved during July, with the degree of optimism reaching a four-month high. Those survey participants forecasting higher levels of output in the coming 12 months commented on expectations of better economic conditions and planned increases in marketing budgets.
Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at Markit, which compiles the survey, said: "The Indian service economy started the second semester on a solid footing, posting its strongest performance since April and thereby indicating that underlying demand conditions remained reasonably firm. Nevertheless, growth remains below-par compared with the long-run survey trend and, although expansion has been sustained for 13 consecutive months, the sector has so far failed to generate jobs. Service providers signalled declining price pressures, with output charges being cut in line with an overall decrease in input costs."
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