Nikkei India Services PMI eases June 2016

Services confidence weakest in four months

Business activity in the Indian service sector increased at the second-slowest rate in the current 12-month period of growth in June. Underpinning this was a softer expansion in new work. Employment rose, but only fractionally, while outstanding business was up compared to May. A faster increase in input costs contrasted with a slowdown in charge inflation. Confidence waned, although remained positive.

The seasonally adjusted Nikkei India Services Business Activity Index recorded 50.3 in June, its second-lowest reading in the current 12-month sequence of above-50 readings. The headline index was down from 51.0 in May, pointing to a slower pace of expansion that was marginal.

 

In contrast, growth of manufacturing production accelerated to a three-month high, which in turn contributed to a stronger increase in private sector activity. The seasonally adjusted Nikkei India Composite PMI Output Index rose from 50.9 in May to 51.1 in June, but remained below its long-run average and pointed to a slight pace of expansion.

June saw a softer rise in services new business, with growth easing to the slowest in 11 months. Anecdotal evidence suggested that strong competitive pressures restricted new business gains. Manufacturing order books increased at the quickest pace since March, outweighing the slowdown in services and therefore contributing to a quicker expansion in private sector new business.

Outstanding business at service providers increased for the first time in five months, albeit slightly. Those survey participants reporting higher backlogs commented on delayed client payments. Goods producers also noted a slight accumulation in work-in-hand.

Indian service providers signalled an increase in staffing levels during June. That said, employment rose marginally as only 1% of panellists reported job creation. According to these respondents, additional hiring reflected greater output requirements. Factory employment was broadly unchanged on the month.

Input prices in the Indian service sector rose for the ninth consecutive month in June, with petrol and vegetables reportedly up in price. Despite accelerating since May, the rate of cost inflation was moderate and below its long-run trend. Purchase prices among manufacturers increased again, but at the weakest pace since March.

Prices charged by Indian service providers continued to rise in the latest survey period. Panellists frequently commented on the passing on of higher cost burdens. Having eased since May, the rate of inflation was modest. By comparison, factory gate charges were broadly unchanged.

Confidence among Indian service providers regarding future business activity was recorded again in June. The degree of optimism was at a four-month low however. According to respondents, activity growth over the coming year is set to be supported by aggressive marketing campaigns. Nonetheless, some panellists expressed concerns regarding competitive pressures.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at Markit, which compiles the survey, said: The Indian service sector saw a further cooling of growth momentum in June, the third in consecutive months, with a weaker rise in new business leading to a softer expansion in activity. Moreover, future expectations dipped to the lowest since February, highlighting concerns regarding the sustainability of the economic upturn. Although manufacturing shifted into a higher gear in June, variables such as new orders, employment and production stayed below their respective long-run averages. Nonetheless, India remains a leading performer within emerging markets at a time when many of its peers are struggling.

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