HSBC India Services PMI declines in May 2015

Private sector output expands at weaker rate amid reduction in services activity

The seasonally adjusted HSBC India Composite PMI Output Index fell to a seven-month low of 51.2 in May, from 52.5 in April. This indicated that private sector output rose further, but at a weaker rate. The slowdown in growth reflected a contraction of services activity, as manufacturing production expanded at the strongest pace since January.

Registering 49.6 in May, from 52.4 in April, the seasonally adjusted HSBC India Services Business Activity Index - a single question tracking changes in activity at Indian services companies on a month-by-month basis - recorded below the crucial 50.0 threshold for the first time in 13 months. Although indicative of falling output, the latest reading pointed to a marginal rate of contraction.

Leading services activity to decline was a reduction in incoming new work, the first since April 2014. Competitive pressures and natural disasters were blamed for the decrease in new business inflows. Nonetheless, the rate of contraction was marginal overall. With manufacturing order books increasing at the quickest pace in four months, private sector new work rose. Nonetheless, the rate of expansion was the slowest in the current 13-month sequence of growth.

Undeterred by weaker demand, Indian services companies hired additional workers in May. That said, the rate of job creation was only fractional as the vast majority of survey participants signalled unchanged levels of staffing. At manufacturers, payroll numbers were broadly unchanged from the prior month.

Amid reports of delayed payments from clients, outstanding business at service providers rose for the eighth consecutive month in May. Nevertheless, the rate of accumulation was slight overall and the weakest since the opening month of 2015. Backlogs in the private sector overall increased at the weakest pace in the current 15-month sequence of rises.

Indian service providers reported rising cost burdens in May. The increase in input prices gathered pace since April, but was weaker than the long-run survey average. Higher salaries paid to staff and rising petrol costs were the main reasons reported by panellists for the latest increase in average input prices. With inflation also accelerating at manufacturers, the overall increase in costs across the private sector quickened.

Concurrently, output prices in the private sector increased further, with the rate of charge inflation the strongest in 13 months.

Service providers' optimism was maintained during May, as improved marketing strategies and better economic conditions are expected to lead to business activity growth over the course of the next year. Although the strongest in four months, the level of confidence was weaker than the series average.

Commenting on the India Services PMI survey, Pollyanna De Lima, Economist at Markit said: "Disappointing May PMI data for India services indicated that the sector fell back into contraction after experiencing growth for six successive months. Restrained demand accompanied by sweltering heat and the earthquake led to falling new work. Nonetheless, the sector is expected to see a rebound in coming months, as these factors fade away. An upturn in employment combined with improved business confidence further add to the evidence that prospects may brighten."

"The manufacturing economy has moved up a gear with production and new order growth the strongest since January. This kept the private sector in positive terrain, with output and new work expanding for the thirteenth straight month."

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