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Services Activity, Sales Rise At Quickest Rates In Seven Years: IHS Markit

Rising from 53.3 in December to 55.5 in January, the IHS Markit India Services Business Activity Index signalled the strongest upturn in output for seven years.

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The Indian service sector started 2020 on a strong footing with surging demand underpinning the fastest increases in new orders and output for seven years, according to IHS Markit India Manufacturing Purchasing Managers' Index (PMI) released on Wednesday.

As a result, job creation was sustained and business optimism maintained. The uptick in growth was accompanied by an intensification of inflationary pressures, with input costs rising to the greatest extent since February 2013 and output charge inflation picking up to a near two-year high.

Rising from 53.3 in December to 55.5 in January, the IHS Markit India Services Business Activity Index signalled the strongest upturn in output for seven years.

The rebound largely stemmed from favourable market conditions and better underlying demand, according to survey participants.

New work intakes also expanded to the greatest extent in seven years with some service providers mentioning a positive outcome from marketing efforts.

As was the case for business activity, sales increased across the five monitored sub-sectors and more markedly in consumer services.

Underlying data suggested that new orders were mainly generated domestically as exports decreased at the start of the year. The fall ended a ten-month sequence of expansion but was only slight.

A number of panelists mentioned weaker demand from China, Europe and the United States. With new business growth ticking higher, services companies continued to add to their workforces.

The rate of job creation was little-changed from December, thereby remaining above its long-run average.

"The Indian service sector sprung to life at the start of 2020, defying expectations of fragility and building on to the momentum gained at the end of 2019," said Principal Economist at IHS Markit Pollyanna de Lima.

"Strong domestic demand led to expansions in new business and output not seen for seven years. With business revenues rising, service providers continued to increase capacity to meet further strong growth in sales," she said in a statement.

"This is good news for job seekers, particularly when we consider the results from the manufacturing industry which showed the steepest upturn in employment since August 2012."

One worrying development, however, was the trend for inflation. The service survey pointed to the sharpest increase in input prices in just under seven years with companies mostly absorbing the added cost burdens themselves instead of fully passing these on to their customers.

"This may translate into quicker increases in selling prices in months to come, which may curb sales. Firms could also choose to restrict hiring in order to protect profit margins," said de Lima.

The IHS Markit India Services PMI is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. 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.