IN: PMI Services Index

Sun Feb 04 23:00:00 CST 2018

Actual Previous
Level 51.7 50.9

The Nikkei PMI survey for India's services sector indicates that conditions improved in the sector in January, with the headline business activity index increasing to 51.7 from 50.9 in December. In contrast, the headline index for the Nikkei Manufacturing PMI survey, published last week, fell from 54.7 in December, its highest level in five years, to 52.4 in January. Together, these moves resulted in the composite index falling from 53.0 in December, its highest level since October 2016, to 52.5 in January.

The increase in the service sector headline index was driven by an increase in the survey's measure of new orders to a eight-month high, whereas the manufacturing survey showed slower growth in new orders in January. The two surveys also showed a divergence in jobs growth, which accelerated in the service sector but decelerated in the manufacturing sector. Service sector respondents remain more optimistic than their manufacturing counterparts about the twelve-month outlook but reported slightly less confidence than in December

The two surveys again showed some divergence in price pressures in January. Input costs were reported to have risen at only a moderate pace in the services sector but to have increased markedly in the manufacturing sector. Both surveys showed some increase in selling prices, but firms in the service sector reported more success in preserving their profit margins.

The PMI surveys for January continue to indicate economic activity has recovered from the initial impact of the government's new goods and services tax introduced in July, despite the fall in the headline index for the manufacturing survey. This suggests that officials at the Reserve Bank of India will likely keep their main focus on the inflation outlook at their policy meeting scheduled later in the week.

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.