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PMI: Indian services sector recovers faster than expected but sustenance key

The December services PMI reading is the lowest in three months, and the index has now stayed below the 50 mark that divides growth and contraction for the sixth straight month. Photo: MintPremium
The December services PMI reading is the lowest in three months, and the index has now stayed below the 50 mark that divides growth and contraction for the sixth straight month. Photo: Mint

  • A sharp rise in manufacturing PMI along with a return to growth of services activity pushed the Composite PMI Output Index to 58 in October. This signals the strongest increase in private sector output in close to nine years

MUMBAI: Business activity in India’s services sector, a key contributor to the gross domestic product, expanded for the first time since February. The seasonally adjusted IHS Markit India Services PMI climbed to 54.1 in October from 49.8 in September. A reading above 50 indicates expansion and a print below the threshold points to contraction.

This improvement was backed by domestic demand, as the country continues to unlock gradually but exports remained under pressure.

“Underlying data indicated that the domestic market was the key source of new business gains, as new orders from abroad declined further. The deterioration in international demand for Indian services was the slowest since March, but nevertheless sharper than any recorded prior to the COVID-19 outbreak," said the survey report.

A sharp rise in manufacturing PMI along with a return to growth of services activity pushed the Composite PMI Output Index to 58 in October. According to the survey report, this signals the strongest increase in private sector output in close to nine years. The Composite PMI Output index stood at 54.6 in September. New business at manufacturing firms increased at a quicker pace than at their services counterparts, the report added.

According to some economists, services growth would continue lag manufacturing at least till an effective vaccine is found. That said, the recovery in the services sector has been faster than it was being anticipated, they added. “The narrowing gap between manufacturing and services PMIs also reflects the restrictions on services being lifted, which should bring more balance to the economic recovery," Rahul Bajoria, chief India economist at Barclays said in a report on 4 November.

Sharing a similar view, Darren Aw, Asia economists at Capital Economics said, “The rise in the October PMIs suggests that the economy has been rebounding a little faster than we had thought. However, there are still plenty of headwinds to the recovery," he added.

Given the second wave of coronavirus infections in the US and Europe, a revival in export demand for services shouldn’t be expected soon. Also, it remains to be seen if domestic demand for services sustains beyond the festive season.

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