Sustained Growth of New Business Supports Output Expansion: IHS Markit

Further increases in new business and output were reflected at Indian services firms in March data as companies benefited from strong demand conditions and elections, according to the latest IHS Markit Services Purchasing Managers' Index (PMI) released. However, despite being marked, rates of expansion softened in both cases. Growth was reportedly curbed by the coronavirus disease 2019 (Covid-19) pandemic and low footfall.

Survey participants reported a sharp increase in input costs, the second-fastest since February 2013. Meanwhile, selling prices rose only fractionally as a vast majority of companies left their fees unchanged due to competitive pressures.

At 54.6 in March, the seasonally adjusted India Services Business Activity Index indicated growth for the sixth consecutive month. Falling from 55.3 in February, the latest reading was consistent with a slower but still marked pace of expansion.

Companies that noted higher output linked the upturn to elections, rising sales and improved demand. Meanwhile, some firms mentioned that low footfall, consumer uncertainty and the Covid-19 crisis led to a reduction in activity at their units.

New orders rose in March, stretching the current sequence of expansion to six months. Although easing from February, the pace of increase was solid and surpassed the long-run series average.

The upturn was associated with elections, higher demand and successful marketing. Growth was curbed by the detrimental impact of the Covid-19 pandemic on footfall.

External demand for Indian services continued to worsen with new orders from abroad decreasing for the 13th straight month. The rate of contraction eased to the slowest in this sequence.

Services companies reported higher expenses in March. The rate of input cost inflation was sharp and outpaced its long-run average, despite slowing from February's eight-year high.

"The escalation of pandemic and reinstatement of restrictions could cause a notable slowdown in growth during April," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

"Service providers hope for an improvement in vaccine availability which would curb the spread of the disease and support the economy."

The IHS Markit India Services PMI is compiled from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.

The panel is stratified by detailed sector and company workforce size based on contributions to GDP.

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government.