In October, services sector shows strong uptick, points to revival: PMI

The services sector, which took the biggest hit when the Covid pandemic hit the country last year, staged a strong growth in October, driven by an uptick of demand and sentiments ahead of the festive season, a monthly survey said on Wednesday.

The monthly survey, by IHS Markit, said the Purchasing Managers’ Index (PMI) for the sector rose to a ten-and-a-half-year high of 58.4 in October as against 55.2 in the previous month. An index reading of 50 or above suggests expansion and below it points at contraction.

The report said service companies hired more hands, leading to job generation reaching the highest levels since February 2020, when the pandemic struck. The services sector includes retail, banks, hotels, real estate, education, health, social work, computer services, recreation, media, communications, travel and tourism.

The sharp growth in the services sector in October is an indication that the third quarter of the current financial year may witness high economic growth, analysts said. With the pandemic virtually shutting down the services sector, the PMI had plunged to an all-time low of 5.4 in April from 49.3 in March 2020 — an unprecedented contraction since the survey first began over 14 years ago.

On November 1, IHS Markit said India’s manufacturing activity grew at its fastest pace in eight months in October, as firms scaled up output in sync with a substantial upturn in new work intakes ahead of the peak festive season. The Nikkei Manufacturing PMI rose to 55.9 in October from 53.7 in the previous month.

Shailesh Chandra, president Passenger Vehicles Business Unit, Tata Motors, said that on Dhanteras this year, the passenger vehicle deliveries doubled over the last year. “Across India, our deliveries grew by 94%,” said Chandra, reflecting the strong demand this festive season.

“There are clearly bright lights shining when we look at various economic indicators,” said Madan Sabnavis, Chief Economist, Care Ratings.

GST collections in October were at a near record high of Rs 1.31 lakh crore. “Exports are up by 42.3%, which means that we are riding the global wave of flourishing global trade. Imports too are rising, both oil and non-oil, which is good news, especially the latter,” Sabnavis said.

Anticipating a recovery, the RBI has forecast a growth of 9.5 per cent for fiscal 2021-22.

According to IHS Markit, services firms were able to secure a healthy intake of new work despite charging more for their services. Output prices rose at a solid rate that was the strongest since July 2017. Anecdotal evidence suggested that additional cost burdens were passed on to clients. While the rate of inflation was at a six-month high and outpaced its long-run average, companies cited higher fuel, material, retail, staff and transport costs.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “A substantial rise in prices charged for the provision of services in India had no detrimental impact on demand, as companies signalled the strongest monthly expansion in new business in over a decade.”

However, De Lima said, ‘business confidence remained subdued” given the inflationary pressures. “Companies’ expenses rose notably from September, which survey participants mainly linked to higher fuel, material, retail, staff and transportation costs,” she said.

The survey said that overall, private sector output in India increased at a sharper rate in October as growth quickened among both manufacturers and service providers. The Composite PMI Output Index rose from 55.3 in September to 58.7, signalling the strongest monthly expansion since January 2012.

Earlier, speaking at an Idea Exchange session at The Indian Express, Kotak Asset Management Company MD and CEO Nilesh Shah had said, “As a fund house, we are overweight industrials and capital goods and we have built our position in the last six-eight months on the hope that capex will revive. But this revival of capex will be in different formats this year. Globally, the soft investments in IT systems, automation and technology are more than the hard assets. Same thing will happen in India.”

Pankaj Pandey, head of research at ICICIdirect.com, said, “Demand is strong across consumer-facing sectors and the challenges are emerging on the supply side. For example, in the auto sector, the demand is good but there are supply issues. The hirings are strong and there is a shortage of people across several service-oriented industries. The pick-up in infra-related sectors such as steel and cement are also helping, along with improvement on logistics challenges. The only challenges are on the supply chain front and cost-push inflation,” Pandey said.