IN: PMI Services Index

Wed Mar 02 23:00:00 CST 2016

Actual Previous
Level 51.4 54.3

Indian services had a disappointing February. At 51.4, the sector PMI was nearly 3 points short of its January outcome and at a 3-month low.

New business continued to expand but at its slowest rate since last November and activity was supported by running down backlogs. Headcount was up but only marginally and business expectations for the year ahead, while remaining positive, declined over the month.

Input costs rose for a fifth consecutive month. However, historically they stayed soft and much the same pattern applied to output prices where inflation remained relatively weak.

With the manufacturing PMI (51.1) unchanged from January, the services outturn puts the composite output index at 51.2, down more than a point from its 11-month high of 53.3 last time and even further below its long-run average (55.7). This points to only a modest increase in aggregate private sector business activity in mid-quarter which, with inflationary pressures easing slightly, should boost hopes for more RBI easing before too long.

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.