Strong demand lifts service October PMI at 54.4, employment level remains the same

Services PMI picks up in October at 54.5 as against 52.0 in September by sharper increase  in new business orders amid strong demand and improved market conditions, says Nikkei India Services Purchasing Managers' Index (PMI), which tracks services sector companies on a monthly basis.

According to Lima, new business order flow was the main driver of output growth with survey respondents highlighting strong demand and improved market conditions. Notwithstanding the uptrend in services sector activity, employment levels were unchanged during October. However, things are likely to change for the better in the coming months.

"The service sector joined its manufacturing counterpart in offering a more upbeat level of performance this month, providing reassurance in the sustainability of the upturn of India's economy," Pollyanna De Lima, economist at IHS Markit, and author of the report, said.

"One underlying concern is the sustained stagnant trend in workforces with both manufacturers and service providers showing some reluctance to hire. Hopefully, the added pressure on capacity shown in the PMI surveys will translate into job creation as we move towards the end of 2016," Lima said.

 On the prices front, the survey noted that input costs of providers rose but at a softer rate, and in turn selling prices remained broadly unchanged.

 Meanwhile, manufacturing production also increased at a quicker rate. Subsequently, the seasonally adjusted Nikkei India Composite PMI Output Index rose to 55.4 in October from 52.4 in September, pointing to a marked pace of expansion in private sector activity that was the quickest in nearly four years, the survey said.

"Nonetheless, a healthy level of overall positive sentiment regarding future business opportunities was seen and with competitive pressures offering just a minor bump in the road of confidence, the services economy looks set to maintain its strong performance in the near term," Lima said.

The Services PMI recorded above the no-change mark of 50.0 for the 16th straight month, highlighting sustained growth in the sector. A reading above 50 means the sector is expanding while below that points to contraction.