India's services PMI dips to 53.2 in December, but firms step up hiring

A slower rise in new orders led to a fall in the services sector growth in December, but employers stepped up hiring in anticipation of a stronger growth in the months to come, the widely tracked Nikkei India Services Purchasing Managers' Index (PMI) showed.

A slow increase in the expenses and healthy growth projections meant that services PMI for December stood at 53.2, slightly lower than the four-month high of 53.7 in November. The 50-point mark separates expansion from contraction.

Factory orders continued to climb for nine months, with an upturn in orders holding close to November's 11-month high. Sales expanded at one of the fastest rates in the past one and a half years, according to the report by IHS Markit, compiler of the PMI survey. 

The upturn in new businesses was domestically driven, as new export work was broadly unchanged, following a reduction in the prior month. Conversely, the manufacturers benefited from higher exports.

However, the sector seems to be shedding the volatility of the past two years. While it has also seen contraction twice in the current calendar year, growth has remained firm since June. All this had a cascading effect on the payroll numbers at services firms that continued to see more hiring for 15 months. Firms hired extra staff and outstanding business rose further. With employment growth accelerating to its second quickest pace since last April, the accumulation in backlogs eased to the weakest in five months. 

On the other hand, a slower expansion in manufacturing jobs was seen, while work-in hand increased to a greater extent.

Prices charged for the provision of services in India rose again at the year-end, as firms sought to share an additional cost burden with their clients. Despite being the highest in three months, the rate of output price inflation was marginal. Factory gate charges, meanwhile, changed little.

Cost inflation at services firms softened for the third consecutive month to its weakest since May 2017. With purchasing prices in the manufacturing industry increasing at a slower pace, aggregate cost inflation was weakest in over two years, but service providers continued to report rising costs, especially for food and fuel.

"Services companies took a breather from rising expenses as cost inflation eased to a 19-month low. This softening enabled firms to hire extra staff to a greater extent, while hiking their charges only marginally. In turn, subdued inflationary pressures and cooling economic growth add some support for a rate cut early next year," Pollyanna De Lima, principal economist at IHS Markit, and author of the report, said.

Advertising efforts, new service offerings and predictions of an improvement in market conditions after the elections boosted business sentiment. Furthermore, the level of confidence was the highest in three months. In comparison, optimism among goods producers moderated from the mid-quarter.

The Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, was down from a 25-month high of 54.5 in November to 53.6 at the end of the year.