New business stabilises but output remains in contraction: IHS Markit

Indian service sector activity declined for the second straight month in October, the first back-to-back reduction since the second quarter of fiscal year 2017-18, according to IHS Markit India Services Purchasing Managers' Index (PMI) released on Tuesday.

New business stabilised following contraction in September while job creation moderated. At the same time, concerns that challenging economic conditions will linger dragged business confidence to its lowest level in close to three years.

There were mixed trends for prices. Cost inflation climbed to a one-year high, but charges increased at a softer pace as weak demand limited pricing power.

Registering 49.2 in October, the IHS Markit India Services Business Activity Index signalled a second consecutive decline in output. However, rising from 48.7 in September, the headline figure was indicative of a marginal and slower rate of reduction.

Anecdotal evidence highlighted subdued demand conditions, competitive pressures and a fragile economic situation. Total sales were broadly unchanged in October after contracting in September for the first time in over a year-and-a-half.

Companies that secured new work mentioned successful marketing efforts and new client wins, while those that noted lower sales commented on fierce competition for new business.

October data indicated that demand weakness was centred on the domestic market, with exporters posting an increase in international sales. That said, the upturn in external demand was modest and the slowest in four months.

Service sector employment increased for the 26th month in a row, albeit at the joint-slowest pace over this period. While a few firms took on extra staff, this was curbed by job shedding at other companies.

"It is somewhat worrying to see the Indian service sector stuck in contraction as firms react to muted demand by lowering business activity," said Principal Economist at IHS Markit Pollyanna de Lima.

"Perhaps even more concerning was the downward revision to future expectations, given the possible detrimental impact of subdued business confidence on investment and jobs," she said. "The latter already displayed its joint-weakest expansion in over two years."

The IHS Markit India Services PMI is compiled from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.

The panel is stratified by detailed sector and company workforce size based on contributions to GDP. IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide.

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