IN: PMI Services Index

Wed Apr 06 00:00:00 CDT 2016

Actual Previous
Level 54.3 51.4

Indian services expanded at a healthy clip in March with the sector PMI jumping from 51.4 in February to 54.3. This equalled its strongest reading since June 2014.

The headline improvement reflected gains in output in five of the six monitored subsectors, in large part built upon faster growth of new business. However, spare capacity was again highlighted in a second successive fall in backlogs and the rate of depletion here was the sharpest since March 2009. As a result, employment was little changed.

Input costs rose but the rate of cost inflation was much the same as in mid-quarter. At the same time, service provider charges were also more expensive but, again, even a faster inflation rate than in February was still historically low. Nonetheless, businesses were confident about the outlook and optimism climbed to a 9-month high on the back of stronger demand and a favourable assessment of the government's new Budget.

Having already seen the manufacturing PMI (52.4) post a useful gain, the buoyancy of its service sector counterpart was enough lift the composite output index a solid 2.1 points to 54.3. This was its best reading in some thirty-seven months and indicative of a strong end to the first quarter by the Indian economy. If sustained this month, the pick-up in economic activity combined with higher inflation should ensure that any additional RBI easing is not seen for some time.

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.