Indian services continued to grow in October and at a somewhat faster pace than in September. At 53.2, the sector PMI was nearly 2 points stronger than in September and at an 8-month high.
The improvement was largely due to a larger increase in new orders which posted their best performance since February. However, backlogs were broadly stable and there was little movement in headcount. Input costs rose but relatively modestly and service provider charges actually fell for a second successive month, albeit only marginally. Business confidence in the year ahead remained positive and reached its highest mark since July.
With the manufacturing PMI pointing to some deceleration in activity, the composite output index rose just over a point to 52.6, equalling its strongest reading since March. Nonetheless, in general private sector activity was still quite sluggish historically and with prices subdued, RBI easing expectations for 2016 are unlikely to be dented. The economic recovery remains intact but the fourth quarter does not seem to have started on a particularly robust note.
Purchasing Managers' Services Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors. The HSBC India Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the Markit PMIs, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the report shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the diffusion index. This index is the sum of the positive responses plus a half of those responding the same.
The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.