Services PMI begins FY15 on a tepid note

Contracts for 10th consecutive month; hiring hit

The services sector, which accounts for the majority of India’s economy, contracted for the 10th consecutive month in April. The contraction, however, decelerated compared to March, showed the HSBC Purchasing Managers’ Index (PMI). The continuous decline in tertiary activities forced services companies to cut hiring in April, the first time in five months.

The PMI for April stood at 48.5 points, against 47.5 in March. A reading above 50 points shows expansion, while one below 50 indicates contraction. “The latest reduction was the 10th in as many months,” said Markit Economics, the financial information firm that compiles PMI data. The services PMI for India is based on a survey of about 350 private companies. Participants in the survey said the difficult economic environment, coupled with the ongoing elections and a further drop in new orders, had contributed to the fall in business activity.

Leif Eskesen, HSBC’s chief economist for India, said, “While the index improved, it remained below the water line. This points to subdued services sector activity.”

Data released last week showed for April, the PMI for manufacturing stood at 51.3 points, stagnant compared to the reading for March. As such, the HSBC Composite Output Index for April rose to 49.5 points from 48.9 points in March. In April, the fall in new work for service providers slowed, while new orders received by manufacturers increased. Overall, private sector companies registered lower new business for the second consecutive month, though the reduction eased.

Services companies indicated payroll numbers dropped marginally in April, ending four months of job creation. If manufacturers were taken into account, “the workforce numbers in the overall private sector was broadly unchanged”, Markit Economics said. It added output decreased in two of the six monitored services categories — financial intermediation and transport & storage.

Participants in the survey were, however, optimistic economic conditions would improve after the elections. They felt planned increases in marketing budgets, the launch of new services and increased demand would improve conditions through the next year.

The PMI is a broad indicator of the economy. Official data didn’t show contraction in services (in value terms) in the December 2013 quarter, despite growth in gross domestic product being below five per cent, the seventh consecutive quarter of sub-five per cent growth.

In April, output cost inflation for service providers rose to the highest in five months, as companies tried to protect margins amid increased costs. Still, the index for output prices was below its long-run trend.

Eskesen cautioned the Reserve Bank of India against any relaxation in its fight against inflation. “The slight uptick in inflation readings suggests inflation pressures are still lingering. This calls for RBI to continue its contest with inflation,” he said.