Growth of services output gathers pace in October: Nikkei India Services PMI

Nikkei Services Business Activity Index jumps to 54.5 in October 2016

A solid and accelerated upturn in incoming new business placed with Indian service providers led companies to scale up activity during October. Survey data indicated that this placed pressure on firms capacity as backlogs of work rose further, but employment levels were unchanged over the month. Input costs increased again, although at a marginal rate that was softer than in September. As for output prices, these were broadly unchanged.

At 54.5 in October, the seasonally adjusted Nikkei Services Business Activity Index recorded above the no-change mark of 50.0 for the sixteenth straight month, highlighting ongoing growth in the sector. Rising from 52.0 in September, the latest figure was consistent with an accelerated rate of expansion that was marked overall.

 

Manufacturing production also increased at a quicker rate, one that was the fastest in 46 months. Subsequently, 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 that was the quickest in nearly four years.

Boosting growth of services output was a pick-up in new orders, which expanded at a solid pace that was faster than in September. According to panellists, the upturn was supported by greater client requests and improved demand conditions. Manufacturing order books also rose at a quicker pace, with growth climbing to a 22-month high.

October data highlighted ongoing pressures on Indian service providers capacity, as 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 rose solidly.

Service sector employment was unchanged over the month, with almost all survey participants reporting the same payroll numbers as in September. Likewise, manufacturing staffing levels stagnated in October.

Higher prices paid for petrol resulted in a further increase in average input prices facing services firms. That said, October saw cost inflation ease to a marginal pace that was much lower than the long-run series average. In fact, less than 2% of monitored firms reported rising cost burdens. 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 around 98% of firms. Overall, a fractional reduction was recorded as the respective index recorded only just below the no-change mark of 50.0. Conversely, factory gate charges rose again, and at the quickest pace since April.

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

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at IHS Markit, and author of the report, said:

"The service sector joined its manufacturing counterpart in offering a more upbeat level of performance this month, providing reassurance in the sustainability of the upturn of India's economy. Incoming new work was the main driver of output growth, with survey respondents highlighting strong demand and improved market conditions.

"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.

"Nonetheless, a healthy level of overall positive sentiment regarding future business opportunities was seen and, with competitive pressures offering just a minor bump in the road of confidence, the services economy looks set to maintain its strong performance in the near term."

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