Services PMI jumps to a five-month high on rise in new orders

The services sector expanded for a second consecutive month in March, indicating that the predominant sector of the economy has recovered from the demonetisation setback, a private survey released on Thursday has shown.

The widely tracked Nikkei Services Purchasing Managers’ Index (PMI) for services rose to a five-month high of 51.5 points in March, compared to 50.3 in the previous month. A reading above 50 signifies expansion, while one below that shows contraction.

“India’s private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output,” Pollyanna De Lima, economist at IHS Markit and the author of the report, said.

“The country’s rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures,” De Lima added.

The sector had contracted for three consecutive months till January, with businesses failing to recover from demonetisation. The PMI averaged 49.3 points in the third quarter of the financial year (FY17). It was 49.5 points for the first two months of the fourth quarter of FY17. The sector experienced a back-to-back rise in new business inflows in March. New orders increased at the strongest rate since last October, the report, based on a survey of 400 private sector firms, pointed out. 

In order to cope with a higher workload, services providers hired people. While employment increased slightly, the job situation has been the best since July 2015, the survey shows.

“By historical standards, the increases in new work and activity remain relatively mild, though growth is likely to gather speed as we head into the new financial year. This is shown by firms’ willingness to hire additional employees and reinforced by stronger confidence towards the 12-month outlook for output,” De Lima said.

The Nikkei India Composite PMI Output Index, which maps the manufacturing and services sectors, increased to 52.3 in March over 50.7 in February, signalling a rise in private sector activity in the country. Indicating a brighter outlook for the sector, services companies indicated that there would be more activity in the coming 12 months, with the overall degree of optimism at a four-month high. Almost 24 per cent of the panellists signalled a positive sentiment, with better marketing campaigns, stronger demand conditions, and the hope that the goods and services tax regime would be favourable to businesses, the key factors supporting confidence.

Input costs for services firms rose again in March, stretching the duration of inflation to seven months. However, despite accelerating to the fastest over this period, the rate of increase was moderate in the context of historical data, the survey said.