Price pressure keeps services biz at 7-mth low

Sales Growth under stress

•  Services cos witnessed 2ndfastest upturn in global orders since Sept 2014
•  Clients in Asia, Europe and the US placing new orders
•  Expenses rising due to higher food, fuel and staff costs
•  Services firms passed these addl cost burden on to clients
•  Hence, rise in charges could have been the trigger of deceleration in sales growth

New Delhi: The services sector growth in India fell to a seven-month low in October on softer increase in output and new business, amid competitive conditions and price pressures, a monthly survey said on Friday.The seasonally adjusted S&P Global India Services PMI Business Activity Index fell to 58.4 in October, from a 13-year high of 61 in September, signalling the slowest rate of expansion since March. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

The survey is compiled from responses to questionnaires sent to a panel of around 400 service sector companies. “Several companies managed to secure new contracts, but some mentioned subdued demand for their services and competitive conditions,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

The October data highlighted the second-fastest upturn in international orders placed with Indian services companies since the series started in September 2014. Survey members noted gains from clients in Asia, Europe and the US. “Export was an area of particular strength in October, with new business gains from Asia, Europe and the US boosting growth to its second-highest in the series over its nine-year history,” Lima added.

On the price front, services companies in India reported an increase in their expenses in October, which they attributed to higher food, fuel and staff costs. “Although survey participants passed these additional cost burdens on to clients, permitted by demand strength, the rise in charges could have been the trigger of the deceleration in sales growth. Moreover, a pick-up in inflation expectations in October dampened business confidence,” Lima added. Going ahead, the Future Activity Index fell by more than five points in October, signalling some loss of confidence surrounding the outlook for services output, amid rising inflation expectations.

Meanwhile, the S&P Global India Composite PMI Output Index fell from 61 in September to 58.4 in October, indicating the weakest rate of expansion since March.