Services PMI climbs to 52.2 in Oct

Services followed manufacturing in October, a survey result revealed on Monday.

The Nikkei India Purchasing Managers’ Index (PMI) rose to 52.2 in October, up from 50.9 recorded in September. This is the fifth successive month of expansion. This index is prepared on the basis of survey conducted among purchasing managers of over 400 private companies. These companies belong to five sectors — consumer services, transport and storage, information and communication, financial and insurance, and Real Estate and Business Services. A score over 50 means expansion, while below that denotes contraction. IHS Markit compiles the survey on a monthly basis.

According to the report, October data points to a strong improvement in India’s services sector, with an accelerated upturn in new work underpinning quicker rises in activity and jobs. Cost inflationary pressures eased, resulting in a softer increase in selling prices. Meanwhile, business sentiment remained positive, but was hampered by political uncertainty.

Strong kickstart to Q3

Pollyanna De Lima, Principal Economist at IHS Markit, and author of the report, said that the PMI surveys brought positive news of strong economic growth at the start of the third quarter of FY 2018/19, indicating a welcome rebound in private sector expansion from September’s four-month low. A strong upturn in services activity complemented the rise in manufacturing production reported last week. Cost pressures faded in October, but service providers continued to report rising costs, especially for food and fuel. At the same time, a robust expansion in workforces – one of the best seen for over seven-and-a-half years – added to firms’ expenses. The waning of cost inflation, coupled with competitive pressures, resulted in only a marginal uptick in charges.

“A positive outlook is by no means assured, however. With business expectations about future activity dropping to the lowest for 20 months in both the manufacturing and service sectors, firms are becoming more guarded in the face of growing uncertainties. The sustainability of current market conditions and political worries both weighed on optimism and pose downside risks to growth,” she said.

ICT, a bright spot

Of the five broad areas of the services sector, information and communication was the brightest spot, registering the strongest growth of activity, new business and employment. Outstanding business at services firms continued to increase in October. The rate of backlog accumulation was the most pronounced in six months. Those companies that reported higher levels of unfinished work mentioned delayed client payments as a key reason. Reflective of higher staff costs as well as greater food and fuel prices, service providers’ expenses rose in October. The rate of cost inflation moderated from September’s 10-month high, however, and was below its long-run average.

Composite Index

Manufacturing PMI reached at 53.1 in October from 52.2 in September. Combined with services, India Composite PMI Output Index improved to 53 in October from 51.6 in September. This reading highlighted the strongest expansion in private sector activity since July.

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