Service sector growth picks up and outlook brightens: Nikkei India Services PMI

Nikkei India Services Business Activity Index rises to 54.7 in August 2016 from 51.9 in July 2016

August saw a solid rebound in the rate of expansion in Indian service sector business activity. Output was raised in response to a marked improvement in new work inflows and increased levels of business confidence. The trend in employment remained comparatively subdued, however, with a slight decrease in jobs signalled for the first time since September of last year.

At 54.7 in August, up from 51.9 in July, the seasonally adjusted Nikkei India Services Business Activity Index posted its highest level for over three-and-a-half years. The headline index has now signalled expansion in each of the past 14 months. Output grew in five of the six monitored categories, the exception being Hotels & Restaurants.

With growth of manufacturing production also ticking higher, the seasonally adjusted Nikkei India Composite PMI Output Index climbed from 52.4 in July to a 42-month high of 54.6 in August, highlighting a stronger improvement in private sector economic activity.

Measured across the service economy, the level of incoming new work rose at the quickest pace for three-and-a-half years. Where an expansion was registered, companies mainly linked this to improved market conditions. Similarly, manufacturing order books increased at a sharp rate that was the quickest since December 2014.

Stronger growth of business activity and incoming new work led to a modest recovery in optimism at service providers. Over 27% of companies expect activity to increase over the coming year, compared to 1% that forecast lower output volumes. Business confidence was linked to greater client interest and improved market conditions. Although the degree of positive sentiment rose to its highest since the start of 2015, it should be noted that it remained below its long-run survey average.

August saw no change in the level of Indian private sector employment, as a slight increase at manufacturers offset a mild fall at service providers. The latter registered the first decline in 11 months, but the rate of job shedding was only slight. Decreases in staffing levels were signalled across the Financial Intermediation, Hotels & Restaurants, Post & Telecommunications, Renting & Business Activities and Transport & Storage categories. However, rates of job losses were negligible in all of these categories.

Price pressures in the service sector remained subdued in August. Average costs declined marginally for the second successive month, which firms attributed to lower diesel, fuel and vegetable prices. Meanwhile, average service charges ticked higher, following a slight decrease in the prior survey month. Goods producers signalled further increases in purchase costs and factory gate charges, although rates of inflation eased in both cases.

Latest survey data pointed to additional pressure on the capacity of private sector companies in India as outstanding business rose at manufacturers and service providers alike. Rates of accumulation were at 32- and 22-month highs respectively.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at IHS Markit, and author of the report, said: "The service sector showed upbeat levels of performance in August. New business was the main driver of activity growth, even amid increased competition for new work. It was encouraging to see rates of expansion in output and incoming new work reaching 43- and 42-month highs respectively.

"The numbers of in-house staff fell, however, as firms remained somewhat uncertain regarding the sustainability of the upturn in demand. However, a further uptick in backlogs - the sharpest in nearly two years - may lead service providers to create jobs in coming months.

"Healthy levels of confidence were also signalled, with firms expecting greater client interest and improved market conditions to underpin output growth in the year ahead. All-in-all, PMI data suggest that the service sector looks set to maintain its strong performance in the months ahead."

Powered by Capital Market - Live News