India's PMI services business activity index fell to 50.2 in April from to 51.5 in March, the first decline since December. With the headline index for the PMI manufacturing survey, released earlier in the week, unchanged at 52.5 in April, the Composite PMI Output Index, which reflects activity in both manufacturing and the services sector, fell from 52.3 in March to 51.3 in April.
Survey respondents in the service sector reported a smaller increase in business activity and new orders in April, with confidence about the twelve month outlook for activity also moderating last month. The manufacturing survey also showed weaker growth in output but stronger new orders and improved confidence about the twelve-month outlook. Both surveys indicated employment rose in April but to a lesser extent than in March.
The surveys show input costs grew at a slower pace in April in the services sector but accelerated in the manufacturing sector. Nevertheless, service sector respondents reported they were able to raise their selling prices at a slightly faster pace than in March, whereas manufacturers advised their selling prices rose at a slower pace.
Despite the fall in the services sector headline index, PMI surveys for April show that activity remains positive and has continued to recover after the sharp contraction seen late in 2016. They also indicate that price pressures are continuing to build in the Indian economy, consistent with suggestions from the Reserve Bank of India that inflation is the main policy concern in the near-term.
The Services Purchasing Managers' Index (PMI) is a joint publication by Markit and the Nikkei media organisation and provides an estimate of business activity in private sector services for the previous month by using information obtained from a representative sector survey incorporating around 800 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).
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.