New business growth hits 38-month high: IHS Markit India Services PMI

India Services Business Activity Index improves from 52.7 in November to 53.3 in December

The Indian services economy gained growth momentum in December, shrugging off the weakness recorded in September and October. A marked and accelerated upturn in new work intakes boosted growth of output and employment, whilst supporting an uptick in business confidence. Worryingly, inflationary pressures intensified, with the fastest rise in input costs for almost seven years pushing output charge inflation to a 22-month high.

The IHS Markit India Services Business Activity Index improved from 52.7 in November to 53.3 in December, highlighting the second-strongest rate of increase in output in over a year (behind July). Survey members linked the rise to better market conditions and new business growth.

 

Total sales expanded for the third consecutive month at the end of the year, and at the quickest pace since October 2016. Where growth was recorded, panellists commented on improved business decisions at the managerial level, the offering of new services and better underlying demand.

The upturn in total new work was achieved with the support of international markets, with services exports rising for the tenth straight month in December. Although moderate, the pace of growth accelerated to the fastest since September.

Amid reports of new business growth, service providers continued to hire extra staff in December. Employment increased for the twenty-eighth month in succession and at a rate that, although modest, was the quickest since August.

Despite ongoing job creation, December data pointed to further capacity pressures at services companies. This was indicated by another monthly increase in outstanding business. That said, the pace of backlog accumulation was only slight and broadly in line with the long-run series average.

Input costs increased further in December, with monitored firms citing higher charges for food, fuel, medical products and transport. The overall rate of inflation was sharp and the fastest in just under seven years.

Consequently, selling prices were lifted again at the year end, taking the current run of inflation to 35 months. The latest increase in output charges was moderate, but the strongest since February 2018.

Indian services companies expect marketing efforts and favourable economic conditions to boost business activity during 2020. Despite rising to a four-month high, the overall level of positive sentiment remained below its long-run average.

Looking at the five broad areas of the service economy, Consumer Services outperformed, posting by far the strongest increases in new business and output.

Consumer Services also registered the steepest rise in input costs during December, but the fastest increase in selling charges was recorded among Transport & Storage firms.

Stronger increase in private sector output

The Indian private sector economy moved further away from the weakness recorded earlier in the quarter, with business activity rising for the second month running in December and at the quickest pace since July. The Composite* PMI Output Index was up from 52.7 in November to 53.7, reflecting stronger rates of expansion in both the manufacturing and service sectors.

One factor supporting the uptick in output growth was a faster rise in aggregate new orders, the joint-strongest in over three years. Rates of increase in sales picked up among goods producers and service providers.

Private sector jobs expanded for the twenty-ninth month in a row during December, and to the greatest extent since August. The rise was broad-based across the manufacturing and service categories.

Aggregate input cost inflation climbed to a 15-month high, underpinning the fastest increase in output charges since February 2018.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "It's encouraging to see the Indian service sector continuing to recover from the subdued performances noted in September and October. More importantly, the news of sustained job creation, robust new order growth and a pick-up in business confidence suggest that expansion can be maintained in the early part of 2020.

"Worryingly, however, were the survey's results for price indicators. While inflation was subdued in the earlier part of 2019, there were three consecutive accelerations in the rate of input cost inflation this quarter. Services firms saw the fastest rise in their expenses in almost seven years in December.

"With manufacturing sector weakness also fading in December, what was anticipated to be a disappointing private sector performance for the third quarter of fiscal year 2019/20 is now looking brighter. Growth looks set to be sustained, but at an unspectacular rate, with the latest quarterly PMI Composite Output Index reading broadly in line with that recorded in the three months to September."

Powered by Capital Market - Live News