Services PMI rises to 21-month high of 54.3 in March

Bengaluru: Growth in India's services firms rose to a 21 month high of 54.3 in March after a sudden contraction of 51.4 in February, as new businesses increased markedly, a survey showed on Wednesday.

The seasonally adjusted Nikkei/Markit Services Purchasing Managers' Index (PMI) had been experienced a straight seventh month above the 50-level that separates growth from contraction till January.

In March, incoming new work in the Indian private sector economy rose for the ninth month running and at the fastest pace in over three years. This reflected on sub sector growth as Markit reported five of the six major sectors witnessed growth, apart from Transport & Storage, which continued to lag behind.

The survey showed March was not very different for job creation compared to previous months. Indeed, the employment sub-index has more or less hovered around the 50-mark throughout 2015-16. However, higher workloads encouraged service providers to hire additional staff for the third successive month. Job creation across the private sector as whole was seen for the sixth straight month, but the rate of growth remained fractional overall.

“One disappointment is the trend in employment, which showed little-change through much of 2015-16. With the sole exception of the mild increase in hiring seen among service providers during last July, the two surveys collectively have signalled a broadly stagnant labour market for the past two years,” said Pollyanna De Lima, economist at Markit and author of the report.

The March data also highlighted ongoing spare capacity in India’s service economy, as unfinished business fell for the second consecutive month. Moreover, the rate of backlog depletion was sharp and the most pronounced since March 2009. Work-in-hand at manufacturers declined for the first time since last October.

For domestic services providers, reports of higher prices paid for a range of raw materials forced input costs to continue rising on average in March, marking a seven-month sequence of inflation. Input costs across the private sector, meanwhile, rose at the quickest rate in three months and charge inflation likewise accelerated, hinting at headline inflation picking-up in coming months, said De Lima. Concurrently, purchase costs faced by manufacturers also increased at a three-month high rate.

The improving demand environment enabled service providers to continue to pass on to their clients part of the additional cost burden. Tariffs were raised at a slightly faster rate than in February, but at a modest rate. After offering discounts in the prior month, manufacturing companies raised their charges in March, again nominally.

India's manufacturing growth registered an uptick in March mainly due to rise in new orders after remaining unchanged in February. The March data showed that along with improved domestic demand, producers also recorded an increase in new export business. Production growth accelerated to the fastest since August 2015, amid a stronger upturn in new business inflows. The latest expansion witnessed consumer goods posting the quickest rate of increase.

New business inflows increased at a solid pace and one that was the most pronounced since last July.

The services data also buoyed the Nikkei India Composite PMI Output Index which climbed from 51.2 in February to a 37-month high of 54.3 in March. However, the reading was still well below the long-run series average (55.7).

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.