Macroscope – Purchasing Managers’ Index – Services PMI for the month May 2021

Introduction to Services Purchasing Managers’ Index (PMI)

PMI, as an index, tracks and reflects changes in services’ volumes derived from a fourhundred company survey. Different elements are attributed distinct weights and the resultant index is accepted to be indicative of current business activity and projected confidence levels.

Being a diffusion index, it poses questions to measure changes in the volume of business activity versus headline figure in the month prior.

The index is considered important as an economic indicator helping compare a country’s activity competitiveness vis-à-vis peers.

Update: Services PMI Reading – May 2021

India Services PMI recorded 46.4 in May vs 54.0 in the month prior, touching its lowest levels since August 2020. Contracting for the first time in eight months, the services sector succumbed to the intensification of the viral virus, snuffing out business confidence.

A reading above 50 denotes expansion and below 50 denotes contraction

Analyst Commentary

The latest reading points to a solid rate of reduction, albeit slower than that seen in aftermath of first COVID-19 wave. India Inc is increasingly worrying about growth prospects, as is reflected by positive sentiment slipping to nine-month low. As a result, pace of jobs shedding increased at its fastest pace since October of last year.

Adding insult to injury is the cost inflationary pressure of raw materials. Increased prices of metals and fuels have increased operating expense, thus crunching margins in midst of an already prolonged business stress period. If price rates continue rising above longrun average, consumers can be expected to share the burden with majority companies choosing to pass down prices by increase purchase prices.

Distributing cost pressures across the economic chain can further dampen demand mood as companies recognize their first decline in sales since September 2020. Low production and lower sales led to abrupt halting in volume of new work.

Cross-border were left wounded too, as new export business fell at quickest rate in six months. Drop was attributed to international travel restrictions and business closure.

Amongst the five monitored segments, Real Estate & Business Services recorded quickest declines in new business and output. Transport & Storage ranked best, registering substantial increases in activity and sales.

The private sector followed suit with new orders falling for first time in nine months and continued job cutting (fifteenth consecutive month).

Confidence of revival is shaken even as services sector expects positive growth in the next twelve months. Covid-19 resurgence lingering restrictions are key factors dampening confidence.

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19.

Going ahead, the race between vaccine vs virus will print services sector’s future. The numbers today highlight the nascent and fragile stage of recovery that the Indian economy is in. We continue to keep an eye on efficient implementation of public policies which can be expected to bolster the economy at large.

Click Here to read IHS Markit’s original press release on ‘IHS Markit India Services PMI’ for the month May, 2021