Services PMI logs fastest growth in 3 months in January, expands to 51.7

The Indian services sector remained in expansion mode in January, registering the fastest rise in activity in three months driven by a renewed increase in new business orders, says a monthly survey.

Even though growth rates for activity and employment accelerated since December, it remained weaker than their respective long-run survey averages. The seasonally adjusted Nikkei Services Business Activity Index improved to 51.7 in January, up from 50.9 in December, signalling a faster expansion.

The index remained above the neutral mark of 50 in January, which separates growth from contraction for the second consecutive month. In November, the index stood at 48.5. “The recovery across India’s services sector continued during January, with growth in output picking up to the joint-strongest since June 2017 as underlying demand conditions improved,” said Aashna Dodhia, economist at IHS Markit and author of the report.

Source: IHS Markit

Indian services providers addressed new business inflows and rising backlogs by expanding workforces for the fifth consecutive month in January. Moreover, the rate of job creation was the fastest since last September.

In terms of prices, Dodhia said input cost inflation across the services sector remained weak by historical standards, although services providers were able to pass on a greater proportion of cost burdens to customers.

“Meanwhile, job creation accelerated to the second strongest in over six-and-a-half years, but as firms struggled in receiving timely payments, the goods and services tax continued to be a key constraint to businesses, and the services sector remained a laggard relative to its manufacturing counterpart,” Dodhia said.

Going forward, services sector companies in India remained optimistic regarding expected activity levels in 12 months’ time.

Meanwhile, manufacturing production growth eased from December’s 60-month high, and accordingly the Nikkei Composite Output Index fell to 52.5 in January, from 53.0 in December.

“Overall, this was consistent with a modest improvement in operating conditions across the private sector as a whole,” the survey said.