Outlook for services output in current fiscal positive: HSBC Survey
Hopes of better economic conditions and forecasts of stronger demand contributed to positive sentiment regarding the outlook for services output in the coming 12 months, said the HSBC India Services Business Activity Index. Moreover, the level of optimism signalled in April was the highest since January. Among the six observed categories, confidence was strongest at Hotels & Restaurants, said the survey. Down to a three-month low of 52.4 in April (March: 53.0), the Index pointed to a modest and softer rise in output across the sector. Where growth was noted, this was linked by firms to higher volumes of incoming new business. By category, the quickest increase was seen in Post & Telecommunication, while Hotels & Restaurants was the only sub-sector to see a contraction. The slower rise in service sector activity was matched by a softer increase in manufacturing production. As a result, the headline HSBC India Composite PMI Output Index fell from 53.2 in March to a six-month low of 52.5 in April. Nonetheless, the latest reading still indicated that the private sector remained in expansion territory. Reflecting stronger demand conditions and improved marketing strategies, services new orders rose during April. That said, the growth rate eased to a modest pace, with panellists reporting increased competition for new work. Manufacturing order books also rose at a weaker clip and, consequently, private sector new business expanded at the softest rate since May 2014. April data highlighted falling payroll numbers in the Indian service sector. However, the rate of job cuts was only fractional as indicated by the respective seasonally adjusted index registering close to the crucial 50.0 threshold. Employment levels at the private sector have remained largely unchanged for over one year. “Accompanying the subdued outlook in the opening month of the fiscal year, was a return to job shedding as companies maintained a cost-cautious approach. On the positive side, panellists’ confidence regarding the one-year outlook for activity improved, indicating that firms are optimistic the current deceleration in growth is a temporary soft patch,” Pollyanna De Lima, Economist at Markit. Unfinished business levels at services firms increased during April. Despite being moderate, the rate of backlog accumulation was the most pronounced since last October. Postponed payments from clients was the main reason provided by survey participants for the latest rise in outstanding work. Across the private sector, overall volumes of incomplete business rose, albeit slightly. “The slowdown in the Indian service sector continued in April, with weaker activity growth reflecting softer demand conditions,” said Lima. In line with rising raw material costs, average input prices in the Indian service economy increased further in April. Nonetheless, the rate of inflation was moderate overall as less than 5% of panellists reported rises. The indices measuring changes in prices paid by manufacturers and service providers both recorded below their respective long-run averages. Output charge inflation in the service economy softened in April and was historically muted, while goods producers reduced their tariffs in an attempt to secure new business. Average selling prices across the private sector as a whole increased at a negligible rate that was the weakest since October 2010 and below its long-run average. “Inflation rates for both input and output prices were weak by historical standards, providing the RBI with more scope for further rate cuts. An expansionary approach to monetary policy would, at a time when the economy is losing traction, provide much needed support for further growth,” concluded Lima.
May 6, 2015 | 4:30 pm IST.
to success.