Home >Markets >Mark To Market >PMI: Is this a blip in India’s services sector or a cooling off?

Business activity in India’s services sector bore the brunt of election-related uncertainty in the run-up to the event. The seasonally adjusted Nikkei India Services Business Activity Index, published by IHS Markit, fell to a one-year low of 50.2 in May, from 51 in April.

A figure above 50 indicates expansion, while a reading below that signals contraction. New business inflows at service providers increased at the slowest pace in eight months. Further, services companies indicated that delayed client payments prevented them from working on their outstanding business. Even though backlogs have increased throughout the past three years, the accumulation recorded in May was the weakest since January.

Some positives, however, were easing input cost pressures, upbeat sentiment about future business outlook and rising pace of job creation. But since the headline number is barely above the contraction mark, the worry is whether this is more than just a blip.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, principal economist at IHS Markit, and author of the report, said: “India’s dominant service economy again suffered the impacts of election disruptions, with growth of both new work and business activity softening for the third straight month. With this now over, upcoming releases of PMI data will be key in showing whether the sector was only hampered by the polls or is actually cooling."

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(Paras Jain/Mint)

Some support to service providers continues to come from export demand, which is a positive. But the ongoing trade tussle between the US and China remains a major dampener for business flowing from overseas. So, that could reverse the trend in export orders any time.

Manufacturing saw a slight improvement in business activity in May. But given the ongoing slowdown in consumption, it’s uncertain if this improvement will sustain. Expectations are that the Reserve Bank of India’s accommodative stance and another interest rate cut will boost overall business activity. But the benefit of a reduced rate comes with a lag and the challenge on the pace of transmission remains.

Although subdued activity in services was offset by better performance by the manufacturing sector, the seasonally adjusted Nikkei India Composite PMI Output Index at 51.7 in May remained unchanged from April.

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