India’s Services PMI Contracts For First Time In Eight Months

A gauge of India’s services sector contracted for the first time in eight months amid a deadlier second wave of the Covid-19 pandemic.

The India Services Business Activity Index, compiled by IHS Markit, stood at 46.4 in May compared with 54 in April, according to a media statement. That’s the lowest in nine months. A reading above 50 indicates expansion in business activity.

The Composite PMI Output Index, too, dropped to 48.1 from 55.4 in April.

The the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions, the statement said.

Growth of new work intakes ground to a halt in May, with companies noting the first decline in sales since September 2020. Survey participants indicated that demand was dampened by the intensification of the Covid-19 crisis. International demand for Indian services also worsened, with new export business falling at the quickest rate in six months. The drop was attributed to international travel restrictions and business closures.

While service providers noted a further increase in outstanding business volumes, the pace of accumulation was moderate and little-changed from April.

Operating expenses at services firms continued to increase in May. The rate of inflation remained sharp and above its long-run average, despite slowing to the weakest since January. While some companies opted to pass on a part of the additional cost burden to their clients via upward revisions to selling prices, the vast majority kept their fees unchanged from April.

Real estate and business services was the worst-affected segment out of the five monitored categories, according to the release, while transport and storage saw substantial increases in activity and sales.

Pandemic-related worries and falling sales led services companies to reduce workforce numbers again during May. The decline was modest but the quickest in the current six-month sequence of job shedding.

Although service providers foresee activity growth over the course of the coming 12 months, the overall degree of optimism weakened to the lowest since August 2020.