Services PMI picks up marginally in Feb after falling for 3 straight months

India’s services activity picked up only marginally in February after declining for three consecutive months following lifting of restrictions on contact intensive sectors as the third wave of the pandemic waned, a private survey said.

                                                                     

Data released by the data analytics firm IHS Markit released on Friday showed purchasing managers’ index (PMI) for services for February rose to 51.8 from 51.5 in the preceding month. A print above 50 is considered expansion while below 50 is considered contraction in manufacturing activity. India’s manufacturing PMI had improved to 54.9 in February after dropping to a four month low at 54 in January as the Omicron variant of covid-19 spread rapidly throughout the country, data released on Wednesday showed.  

“The upturn was attributed by panelists to greater bookings, better demand conditions and the retreat of the pandemic. That said, the latest increase was subdued by historical standards, with some companies indicating that growth was dampened by competitive pressures, Covid-19 and higher prices,” the firm said.

Pollyanna De Lima, economics associate director at IHS Markit said growth in the service sector failed to rebound as meaningfully as many would have hoped given that covid-19 cases receded considerably from January's new wave and restrictions were lifted. “New business and services activity expanded only modestly, and at the second-slowest rates since last July. Looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth,” she added.  

De Lima said business optimism among services firms remained muted relative to its trend, despite improving from January, owing to pandemic-related uncertainty and inflationary pressures. “Although easing from January's decade high, the rate of input cost inflation remained sharp in February. That said, fewer firms passed on additional cost burdens to clients amid subdued demand conditions. Output prices rose only slightly, and at the slowest pace in five months," she said.

Companies indicated higher operating expenses in February, with chemical, energy, food, fuel, labour, metal, plastic and retail costs reported as the key drivers of inflation. The overall rate of increase was sharp, but eased from January's ten-year high.

“Charges levied by service providers were revised upwards in February as companies continued to transfer additional cost burdens to clients,” the data analytics firm said.  

Several firms suggested that marketing efforts, demand resilience and new client wins boosted sales. “There were, however, signs that growth was hampered by input shortages, the pandemic and local elections. International demand for Indian services remained subdued in February, as indicated by a further decline in new business from abroad,” IHSMarkit said.

Relatively weak growth of new business and a lack of pressure on capacity led some companies to reduce headcounts in February. The latest fall in employment was the third in successive months and the fastest since July 2021.