Service PMI hits 7-year high in Jan on favourable market, business optimism

New Delhi: India’s services sector activity surged to a seven-year high in January driven by a sharp increase in new business orders, leading to job creation and business optimism amid favourable market conditions, a monthly survey said on Wednesday.

The IHS Markit India Services Business Activity Index rose from 53.3 in December to 55.5 in January, signalling the strongest upturn in output in seven years.

“The Indian service sector sprung to life at the start of 2020, defying expectations of fragility and building on to the momentum gained at the end of 2019,” said Pollyanna de Lima, Principal Economist at IHS Markit.

New work intakes also expanded to the greatest extent in seven years. Fresh business orders were mainly generated domestically, as exports decreased at the start of the year. A number of panellists mentioned weaker demand from China, Europe and the US.

“With business revenues rising, service providers continued to increase capacity to meet further strong growth in sales. This is good news for job seekers, particularly when we consider the results from the manufacturing industry which showed the steepest upturn in employment since August 2012,” Lima said.

Meanwhile, the Composite PMI Output Index that maps both the manufacturing and services sector increased from 53.7 in December to a seven-year high of 56.3 in January.

On the prices front, the uptick in service sector activity was accompanied by an intensification of inflationary pressures, with input costs rising to the greatest extent since February 2013 and output charge inflation picking up to a near two-year high.

“One worrying development, however, was the trend for inflation. The service survey pointed to the sharpest increase in input prices in just under seven years, with companies mostly absorbing the added cost burdens themselves instead of fully passing these on to their customers,” Lima said.

Lima further added that “this may translate into quicker increases in selling prices in months to come, which may curb sales. Firms could also choose to restrict hiring in order to protect profit margins.”

Amid slowing economic growth and rising inflation, the Reserve Bank of India will unveil its last monetary policy for the current financial year on Thursday.