Nikkei India Services PMI rises in August 2015

Growth of private sector output gathers momentum in August

India's private sector economy improved further in August. The seasonally adjusted Nikkei India Composite PMI Output Index rose to a five-month high of 52.6 from 52.0 in July. The uptick in growth was boosted by a quicker expansion of services activity, as the increase in manufacturing production softened in August.

The seasonally adjusted Nikkei Services Business Activity Index rose from 50.8 in July to 51.8 in August, pointing to a faster, although modest, expansion in output. Activity growth was recorded in three of the six monitored categories, namely, Hotels & Restaurants, Post & Telecommunication and 'Other Services'.

 

Leading services activity to increase was a further rise in incoming new work. According to panellists, higher demand coupled with capacity improvements and increased marketing all had contributed to the latest expansion in new business. Despite quickening since July, the rate of growth was moderate. While manufacturing new work rose at a weaker pace than in July, growth nevertheless outpaced that seen at their services counterparts. New business across the private sector as a whole expanded at a moderate pace that was the quickest since March.

Indian services companies indicated that backlogs of work decreased in August, reflecting a general lack of pressure on capacity and efficiency improvements. However, the rate of depletion in outstanding business was fractional overall and little-changed since the previous month. Outstanding business also fell at manufacturers and, subsequently, across the private sector as a whole.

Evidence suggested that relatively weak increases in new business influenced service providers to leave their workforces unchanged. This ended a three-month sequence of job creation. Goods producers also reported no change in employment levels during August.

Input prices faced by Indian services firms rose for the ninth month running in August. Having eased to the weakest in this sequence, the rate of inflation was marginal overall. Concurrently, cost burdens faced by manufacturers fell, offsetting the rise noted in the service sector.

Further increases in costs led services firms to raise their selling prices again in August. Despite accelerating since July, the rate of charge inflation was only marginal and below the series long-run average. As with the trend for costs, factory gate charges decreased in the latest month. Across the private sector overall, charge inflation softened to the weakest since April.

Indian services companies remained optimistic that business activity will increase over the course of the next year, with positivity linked to forecasts of demand growth. However, the Business Expectations Index dipped to a survey low, reflecting firms' concerns around future economic conditions and exchange rate movements.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at Markit, which compiles the survey, said: "Economic growth across India was boosted by improvements in the service sector. While increases in activity and new business across the sector accelerated in August, moderations in growth rates were noted at goods producers. The standout feature from the latest PMI dataset was the situation of the labour market. Both manufacturers and service providers left payroll numbers unchanged in August, with significant job creation not seen since early 2014. While the path ahead for the economy looks unclear, firms' reluctance to hire persists. This uncertainty towards output expectations was highlighted by the services Business Expectations Index dipping to a survey low. On the monetary-policy front, the Reserve Bank of India advocated a wait-and-see approach to setting the benchmark rate in August. With growth remaining relatively weak and survey evidence pointing to a lack of inflationary pressures across the country, further rate cuts are on the cards."

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