Services PMI rises to 52.8 in Jan on the back of demand, consumer optimism

That improved sentiment was in line with findings of a Reuters poll last month that predicted Asia's third-largest economy would recover from the Covid-19 crisis more strongly than previously thought

Growth in India's dominant services sector picked up in January as demand improved and consumer optimism was buoyed by the start of a huge Covid-19 vaccination drive, although firms continued to shed jobs, a private survey showed on Wednesday.

That improved sentiment was in line with findings of a Reuters poll last month that predicted Asia's third-largest economy would recover from the coronavirus crisis more strongly than previously thought, lifted by the government's "wealth and wellness" budget announced on Feb.1. 

The Nikkei/IHS Markit Services Purchasing Managers' Index rose to 52.8 in January from 52.3 in December, staying above the 50-level mark separating growth from contraction for the fourth straight month.

"The Indian service sector enjoyed good levels of activity in January, with new business volumes rising for the fourth successive month and growth rates for both measures picking up from December," noted Pollyanna De Lima, economics associate director at IHS Markit.

A sub-index tracking new business rose last month primarily due to a continued recovery in domestic demand as export orders contracted for the eleventh straight month, hurt by strict restrictions to curb a resurgence in coronavirus cases in major economies.

Firms continued to shed jobs, as they have in most months since the pandemic began.

Despite facing a continued rise in cost pressures, albeit at a slower pace, firms reduced prices charged for the second consecutive month in an effort to boost sales.

"The main area of concern is the extent to which costs are rising across the services economy, with the rate of inflation remaining above trend despite easing from December," added De Lima.

That increases the chances of overall inflation remaining elevated over coming months, reducing the likelihood of further easing in monetary policy by the Reserve Bank of India anytime soon.

Still, business expectations strengthened to an 11-month high last month on hopes of a successful vaccine rollout, which is widely predicted to improve demand further.

Quicker growth in the services sector, along with a continued robust recovery in manufacturing activity, helped a composite PMI to increase to 55.8 in January from 54.9.