Business activity falls slightly as new orders stagnate in May: Nikkei India Services PMI

Nikkei India Services Business Activity Index declines to 49.6 in May from 51.4 in April

India's service sector reported a contraction in business activity for the first time in three months and a broad stagnation in new orders. Reflecting competitive conditions, jobs growth slowed to the weakest since last December. On the price front, input cost inflation picked up from April's recent low and was solid overall. That said, service providers were restricted in their ability to fully pass on higher cost burdens to clients.

The seasonally adjusted Nikkei India Services Business Activity Index fell from 51.4 to 49.6 in May. This was indicative of a marginal contraction in business activity, following a two-month period of growth. According to anecdotal evidence, competitive demand conditions were the key factor behind a decline in output.

 

The headline seasonally adjusted Nikkei India Composite PMI Output Index fell from 51.9 in April to 50.4 in May. The latest reading indicated the weakest improvement in the health of the private sector in the current three-month sequence of growth. Overall, modest growth in the manufacturing sector outweighed the marginal decline in the service sector.

Meanwhile, a broad stagnation in new orders was recorded across the service sector in May.

At the same time, new business at Indian manufacturing companies rose for the seventh consecutive month. However, the latest growth was the weakest in three months.

Despite weak demand conditions, service providers continued to recruit employees further during May. However, job creation was modest and the weakest in 2018 so far. Jobs growth was nonetheless evident across all monitored broad sectors, with the sharpest increase in Information & Communications.

Reflecting sustained growth in manufacturing output, manufacturers raised their payroll numbers in May. That said, in line with the trend for output and new orders, job creation eased from the latest survey period.

As has been the case since June 2016, backlogs accumulated at service providers in May, albeit only marginally. According to panellists, higher volumes of unfinished business partly emanated from delayed client payments.

Input prices rose across the service sector during May, thereby extending the current sequence of inflation to 21 months. Higher salaries, as well as prices for fuel and vegetables were reported to have increased in the latest survey period. Despite registering below the historical average, input cost inflation picked up from April's eight-month low and was solid overall. Information & Communication recorded the fastest rise in costs.

Amid reports of higher oil and steel costs, Indian manufacturing companies faced higher cost burdens for the thirty-second consecutive month in May. Moreover, inflation was marked and the strongest since February.

Despite a sharper rise in input prices, service sector output charge inflation moderated to an 11-month low. This highlighted that firms were unable to fully pass on higher cost burdens to price-sensitive customers.

Looking ahead, business confidence towards the 12-month outlook for output among service providers was the strongest since January 2015. Panellists reported that promotional activities and an improvement in demand conditions underpinned business confidence.

Commenting on the Indian Services PMI survey data, Aashna Dodhia, Economist at IHS Markit, and author of the report, said: "The performance of the service sector was disappointing in May, as output dipped into contraction for the first time in three months. The slowdown in service activity fed into the labour market, as jobs growth moderated from April's seven-year high.

"A bright spot of the services PMI data was that business sentiment was the strongest since January 2015, rooted in expectations of improvements in demand conditions in the year ahead.

"However, India saw the slowest improvement in the health of the overall economy since February in May, whilst the latest survey showed the effects of higher global oil prices as the private sector recorded the most marked input cost inflation for three months."

Powered by Capital Market - Live News