Weaker rise in sales drags services activity growth to seven-month low: Nikkei India Services PMI

Nikkei India Services Business Activity Index declined to 51 in April 2019

The Indian service sector lost momentum in April, with rates of new business and output growth both cooling to seven-month lows. That said, predictions that economic conditions will normalise after the elections underpinned optimism regarding the outlook and supported a stronger upturn in employment. At the same time, rates of inflation for input costs and output charges remained weak by historical standards.

Falling from 52.0 in March to 51.0 at the start of the 2019 financial year, the seasonally adjusted Nikkei India Services Business Activity Index pointed to the weakest upturn in output since last September. Moreover, the headline figure dipped below the average seen over 2018 (51.6). Growth was linked to greater bookings, improved facilities and effective marketing, though curbed by competitive pressures and the elections.

With growth of manufacturing production also softening to a seven-month low, the seasonally adjusted Nikkei India Composite PMI Output Index fell from 52.7 in to 51.7 in April. The latest figure was indicative of a slight pace of expansion in aggregate activity that was weaker than seen on average over the series history.

Amid reports of strategic pricing and successful advertising, incoming new work at services firms rose further in April. However, the upturn was only slight and the weakest in seven months. The expansion was reportedly curtailed by greater online bookings among customers, competitive conditions and the elections. At the same time, factory orders increased at the slowest rate since last August.

The rise in total sales at service providers was supported by stronger demand from overseas markets, as signalled by the quickest increase in new export business for ten months. A marginal uptick in growth was noted in the manufacturing industry.

Buoyed by ongoing improvements in new work and optimistic growth projections, service providers placed more people into jobs during April. The rise in employment was moderate, though quickened from March. On the other hand, job creation in the manufacturing sector eased to the weakest in the current 13-month sequence of expansion.

Input price inflation in India's service economy moderated to the second-slowest rate recorded in almost two years. In fact, close to 98% of companies indicated unchanged cost burdens from March. Across the private sector, the latest increase in input prices was the least pronounced in close to two-and-a-half years.

Only negligible increase in output charges were registered in the manufacturing and service sectors in April.

Almost one-fifth of service providers foresee growth of business activity in the coming 12-month period, with many indicating that economic conditions are likely to normalise once a government is formed. Optimism was also supported by marketing initiatives, the upcoming launch of low-cost services and efforts to expand capacity. The overall level of sentiment across the private sector was the second-highest recorded since September 2018.

Finally, Indian services firms continued to report greater levels of unfinished business during April. Delayed client payment was cited as the key reason preventing firms from completing outstanding workloads. Backlogs also increased among goods producers.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, Principal Economist at IHS Markit, and author of the report, said, Although the Indian private sector economy looks to be settling into a weaker growth phase, much of the slowdown was linked to disruptions arising from the elections and companies generally foresee improvements once a government is formed.

"However, voting was not the only reason cited for the slowdown. In the service sector, competitive conditions and a shift towards online bookings among customers reportedly restricted new business gains and in turn growth of activity. On a more positive note, the labour market is showing resilience as companies hired extra staff at an accelerated pace.

"Another key takeaway from the latest results is the lack of inflationary pressures in both the manufacturing and service sectors, which coupled with slower economy growth offers room for a further cut to the benchmark repurchase rate."

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