Feb services PMI shows growth after 3 months

The services sector, a dominating part of India’s economy, might record a gradual recovery in the fourth quarter, after being hit hard in the third quarter because of demonetisation, showed Nikkei’s Purchasing Managers’ Index (PMI) survey. Services sector firms, however, still laid off workforce in February as the recovery was fragile and not broad-based. 

PMI for services rose to 50.3 points in February, after remaining below 50 for three months. A reading above 50 signifies expansion, while one below that shows contraction. PMI averaged at 49.3 points in the third quarter of the financial year; it was at 49.5 points for the first two months of the fourth quarter. 

While a turnaround was seen in business activity and inflows of new work in financial intermediation, many other sectors saw declines in February. Nonetheless, rates of contraction softened in all cases. Growth in financial, real estate and professional services slowed sharply to 3.1 per cent in the third quarter of FY17, against 7.6 per cent in the second quarter and 8.7 per cent in the first, according to the official gross domestic product (GDP) data. If PMI is a lead indicator, then financial services might be seeing a turnaround in the fourth quarter. IHS Markit, compiler of the survey, said services companies continued to reduce payroll numbers.

Earlier, PMI data had shown that manufacturing activities had inched up in February to 50.7 points from 50.3 points in the previous month. In December, PMI had contracted below 50 due to demonetisation.

“The upturn in services activity follows news from the sister PMI survey showing factory production growing for the second straight month in February,” Pollyanna De Lima, economist at IHS Markit, and the author of the report, said.

However, the survey participants were less optimistic about the 12-month outlook. Firms were concerned about market competition, and this muted sentiments reflected in the payroll numbers.

“It is still too early to state that expansion rates will climb to their trend levels in the near term. Companies remain reluctant to take on additional staff and confidence of the 12-month outlook for output dipped to its second-lowest mark in over one year,” Lima said, adding that these factors indicated that firms were doubtful about the sustainability of the economic recovery.

The Nikkei India Composite PMI Output Index — which maps the manufacturing and services sectors — rose from 49.4 in January to 50.7, pointing to the first increase in private sector activity across India since last October.