Nikkei India Services PMI decline for second month in a row, at 51.0 in May

03 Jun 2016 Evaluate

After the weak manufacturing activity, the growth of services activity in India too softened for the second straight month in May, as new business inflows expanded at the slowest rate since July 2015. The seasonally adjusted Nikkei Services Business Activity Index fell to 51.0 in May from 53.7 in April. Although service providers remained optimistic that output will expand in the year ahead, the level of confidence was the lowest recorded since February.

The seasonally adjusted Nikkei India Composite PMI Output Index, which measures both the manufacturing and the services sectors, fell to a six-month low of 50.9 in May, from 52.8 in April. As per the survey panellists growth of new work at services firms eased for the second month running in May. Where new business inflows expanded, aggressive marketing campaigns were reported. Nonetheless, there were mentions that growth was restricted by increased competition and the assembly elections in some regions. Manufacturing order books increased at a quicker pace that too was modest.

Although some firms took on additional staff, the overall pace of job creation was fractional. Services staffing levels increased in May, following a stagnation in the prior month. But with only 1% of survey participants signalling higher payroll numbers, the overall rate of job creation was fractional. A marginal increase in manufacturing employment was also registered.

Input costs rose again amid reports of higher petrol prices, average cost burdens facing service providers in India rose during May, leading to a further increase in prices charged. The latest increase in input prices was the eighth in as many months, but the rate of inflation eased since April and was lower than its long-run average.

Going forward, the Services companies expect output to increase over the coming 12 months; however the degree of optimism reportedly weakened to the lowest since February. As per the Markit’s survey exactly 15% of firms forecast activity growth, citing favourable government policies, improved marketing strategies, business expansion plans and hopes of better demand conditions.

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