Services PMI rises in Sept but sentiment down from post-election euphoria

While new orders rose, business sentiments fell to the lowest level in September in a year

In September, India’s services sector, which accounts for the largest chunk of the country’s economy, grew more than in the previous month, owing to higher new orders, showed the HSBC Purchasing Managers’ Index (PMI). However, the sentiment in the sector fell to the lowest in a year, following the surge seen after the Lok Sabha elections.

The PMI for September stood at 51.6 points, against 50.6 in August. A reading of more than 50 shows expansion, while one below 50 indicates contraction. The PMI for services is based on a survey of about 350 private companies.

For June, a month after a new government came to power at the Centre, the reading was 54.4 points. The reading for July was 52.2.

Frederic Neumann, co-head (Asian economic research), HSBC, said, “Services sector activity bottomed out in September, thanks to stronger new business flows. However, business sentiment continues to deteriorate, after a strong post-election uptick. A pick-up in reform efforts is needed to put growth on a firmer footing.”

With manufacturing PMI at 51 points in September, the HSBC Composite Output Index stood at 51.8 points, compared with 51.6 in August.

In September, services activity rose in three of the six sub-sectors monitored, with the highest rise seen in post & telecommunications.

Amid reports of stronger demand, growth in new business at services firms continued for the fifth consecutive month. The sector also recorded job creation, the first time in three months.

Following six consecutive months of backlog accumulation, business outstanding was stable.

Expectations on the output front were high. Those surveyed were optimistic about an improvement in demand and new marketing initiatives.

Meanwhile, input inflation in the sector fell to the lowest since November 2009. Output prices rose the least since November 2010.

HSBC’s Neumann asked the government to continue reforms so that supply-side risks to inflation were addressed.

On a quarterly basis, services PMI for the quarter ended September stood at 51.46, compared with 51.03 per cent in the quarter ended June. It is expected the higher growth in the September quarter will boost growth in gross domestic product (GDP) for the period.

For the June quarter, GDP grew at a two-year high of 5.7 per cent.

As the PMI is based on a survey, it only gives a broad indication, unlike GDP data.