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Business activity returns to growth amid rising new work: IHS Markit India Services PMI

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IHS Markit India Services Business Activity Index rises to 52.7 in November 2017 from 49.2 in October 2019

Indian service providers signalled a moderate rebound in business activity during November, with the return to output growth accompanied by a renewed rise in new business intakes, faster job creation and strengthening business confidence. Meanwhile, pressures on operating margins intensified, with cost burdens increasing at a more marked pace than average selling prices.

Posting 52.7 in November (October: 49.2), the IHS Markit India Services Business Activity Index signalled output growth for the first time in three months. The upturn was associated with a pick-up in demand, improved technology and rising client numbers. That said, the headline figure remained below its long-run average of 54.2.

The modest expansion of services activity was achieved by growth in three of the five categories monitored by the PMI survey, namely Consumer Services, Information & Communication and Real Estate & Business Services. Activity fell at Transport & Storage and Finance & Insurance firms.

Overall volumes of incoming new work increased to the greatest extent in four months, following a stabilisation in October. Companies that reported higher sales generally cited better demand conditions.

November data signalled a ninth successive rise in new business from international markets, with the pace of expansion accelerating slightly from October.

Service providers levels of work-in-hand rose for the second straight month in November. Survey respondents suggested that backlogs of work increased as a result of pending client payments. The pace of accumulation was, however, moderate.

Employment continued to increase in November. Although moderate, the pace of job expansion accelerated to a three-month high and was in line with the long-run series average. Anecdotal evidence highlighted improving demand as the main factor boosting workforce numbers. Four of the five broad areas of the service economy monitored by the survey recorded job creation, the sole exception being Finance & Insurance.

Average input prices increased solidly in November, with the rate of inflation quickening to a 13-month high. Survey respondents mostly attributed higher cost burdens to rising food, fuel and medicine prices. The rise in input costs was widespread across the five tracked sub-sectors.

Concurrently, average prices charged for the provision of services in India increased only slightly and at the weakest pace since July. This meant that the gap between rates of input cost and output charge inflation was the widest noted for over a year.

Looking ahead, November data signalled improving confidence about the prospects for the Indian service economy. The level of positive sentiment was at a three-month high, but well below its long-run average. Marketing initiatives, lower lending rates and favourable state policies were cited as potential growth drivers.

Following back-to-back contractions, Indian private sector output expanded in November. The upturn reflected faster growth of manufacturing production and a renewed rise in services activity. The Composite* PMI Output Index rose from 49.6 to 52.7, signalling a moderate pace of increase that was below the long-run survey average.

Aggregate new orders increased for the second straight month in November and to the greatest extent since July. Growth was seen in both the manufacturing and service sectors.

Trends for employment varied. While job creation was sustained in the services economy, goods producers signalled reduced headcounts for the first time in 20 months. At the composite level, there was a slight rise in payroll numbers.

Lastly, input cost inflation across the private sector accelerated to a one-year high, but remained historically weak, while the rate of charge inflation was unchanged from October.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "Although the services economy shrugged off some of the weakness seen in September and October, the latest PMI results continue to sound a note of caution regarding demand and the underlying state of the sector.

"The main positive to be taken from November's survey was a renewed increase in new work, which provided the platform for growth of services activity and employment whilst resulting in an improvement in business confidence. But, while the sector moved along nicely and looks set for a sustained expansion in December, there were signs of fragility.

"Rates of expansion in sales and activity were mild by historical standards, while the degree of business confidence remained subdued. Also, a moderation in charge inflation, which came despite the strongest upturn in cost burdens for over a year, highlights a lack of pricing power among services firms. This relatively weak rise in charges likely supported demand in November, but leads to questions on how long firms can absorb cost increases and sacrifice margins in favour of demand growth."

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, December 04 2019. 14:08 IST
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