The HSBC Services PMI fall eases but growth remains subtle

Private sector output contracts at moderate and slower rate

The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, rose to 47.1 in October from September's four-and-a-half year low of 44.6. Nonetheless, the latest reading indicated a fourth successive monthly contraction of service sector output across India. Sector data indicated that business activity fell in five of the six categories monitored by the survey, with the sharpest decline noted at Hotels & Restaurants.

The HSBC India Composite Output Index posted below the 50.0 no-change mark for the fourth consecutive month in October, indicating a further contraction. That said, the headline index rose from 46.1 to 47.5 in October, signalling a moderate and slower drop in private sector business activity. Output fell at a slower rate across the service sector.

 

Lower levels of private sector output mirrored a further decrease in new business flows. As with the trend for activity, incoming new work contracted at a slower rate in services, but quickened in manufacturing. Anecdotal evidence indicated that worsening client confidence, economic instability, competitive pressures and the cyclone Phailin had all contributed to the latest drop in new work. For the second successive month, all six service sub-sectors posted lower new business volumes. The fastest decline was noted at Hotels & Restaurants.

Whereas employment in the manufacturing sector rose slightly, service providers indicated little change in their payroll numbers during October. Consequently, the rise in staffing levels across the Indian private sector as a whole was only marginal. Four of the six monitored service categories posted job shedding, the exceptions being Renting & Business Activities and 'Other Services'.

Ending a two-month sequence of contraction, backlogs of work in the Indian private sector were unchanged from the levels recorded one month previously. Higher unfinished business at manufacturers offset declines at service providers. Services firms highlighted recent reductions in new business as the main reason behind the latest drop in backlogs.

Inflation rates in the Indian private sector rose during October, with input prices increasing at the quickest pace in 16 months and the rate of charge inflation climbing to a seven-month high. These were driven by faster increases in the goods-producing sector, as the rates of input and output price inflation were unchanged at services companies.

Robust optimism regarding output growth in the coming year was sustained during October. Panellists expect the launch of new services, planned increases in marketing budgets and forecasts of better economic conditions do support demand growth in the year ahead.

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