At 41.8, services PMI continues to show contraction for 6th month in Aug

 Activities in services, the biggest sector of India's economy, fell for the sixth month in August even as the rate of contraction came down compared to July's reading as the process of unlocking intensified, according to widely-tracked IHS purchasing managers' index (PMI). This forced companies to continue laying off workers, though the rate here also came down from July's.

PMI for services rose to 41.8 in August compared to 34.2 in July. Fifty is the point that separates contraction (below 50) from growth (above 50). This means that the services sector was still some eight points below the growth path. However, the reading was the highest since March when the lockdown was imposed towards the last week of the month due to the outbreak of Covid-19.

The trend is different from the manufacturing sector which grew for the first time in six months. However, due to service

PMI, the manufacturing and services sector activities in the economy continued to contract in August. PMI for combined services and manufacturing rose from 37.2 in July to 46 in August.

Though not strictly comparable, the PMI numbers showed that the gross domestic product was adversely affected in the first two months of the second quarter of the current financial year after falling massively by 23.9 per cent in the first quarter. One of the services segments -- trade, hotels, transport, communication -- fell as high as 47 per cent in Q1. Manufacturing contracted 39.3 per cent in those three months.

Commentary associated with PMI said the ongoing coronavirus pandemic 2019 (Covid-19) restrictions continued to adversely impact client demand and business operations.

Shreeya Patel, Economist at IHS Markit, said," August highlights another month of challenging operating conditions in

the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry."

Sustained revenue losses through the second quarter and increasing cost burdens led companies to raise charges for the first time since March.

According to respondents, the fall in output was linked to a further weakening of demand conditions during August,

while some businesses remained closed as a result of ongoing lockdown restrictions. The rate of contraction in output was

solid overall, despite easing from the previous survey period as some firms gradually resumed operations.

New business placed at service providers fell for the sixth month running in August amid weak market demand. That said,

the rate of decline was the slowest in five months.

Similarly, new export orders received by Indian service providers fell at a solid pace. The rate of contraction was among the steepest since the start of the series in September 2014.

Reduced business activity saw the Indian service sector operating below capacity. As a result, firms reported job

shedding for a sixth consecutive month. The fall in employment was only modest, however, and much slower than July's record.

Ongoing Covid-19 restrictions and temporary business closure meant that firms were unable to process previously-placed

orders, which led to incomplete work increasing for a third month running. Moreover, the pace of increase was substantial,

and the fastest since the survey began in December 2005.

Looking ahead, sentiment was neutral in August. Two-thirds of panellists expected output in the year ahead to remain

unchanged on current levels. While some firms hoped for the passing of Covid-19, others noted market uncertainty and

expectations of extended lockdown measures to weigh on future activity.

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.

June services activity shrinks for third month in a row; PMI at 33.7

Services sector activity contracted for the third straight month in June as poor domestic demand, low export orders continued to keep the services sector in a deep downturn in the aftermath of the nationwide lockdown, showed a monthly survey released on Friday.
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The IHS Markit Services Business Activity Index (Services PMI) remained contractionary, despite rising to 33.7 in June, up from 12.6 in May and just 5.4 in April. In PMI parlance, the 50-mark threshold separates expansion from contraction.
Extended business shutdowns and continuing weak demand sank output in June. Although the downturn lost further momentum, it remained excessively strong as the Covid-19 pandemic curtailed intakes of new work and disrupted business operations.

Factory slump deepens in May, job cut gathers pace: PMI data

India’s manufacturing activity contracted in May due to weak demand and logistic challenges, said the monthly IHS Markit India Manufacturing Purchasing Managers’s Index (PMI) survey on Monday. The fall was slightly slower than April's historic contraction.
Manufacturing PMI stood at just 30.8 in May, marginally up from April's 27.4. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. "The latest reading pointed to another substantial decline in the health of the Indian manufacturing sector, albeit one that was slightly softer than recorded in April," said Markit Economics.
A nationwide lockdown in April, coupled with a crash in export orders, had led to conditions across sectors falling by the biggest margin ever and new businesses collapsing at a record pace. In May, jobs were hit the most. Jobs were again cut and at a quicker pacer than April's 15-year high, the survey said.
PMI had already been on a downward curve even before the Covid-19 pandemic hit. After hitting an eight-month high of 55.3 in January, output had fallen to 51.8 in March. “The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis, with demand remaining subdued while the longevity of the pandemic remains uncertain," said Elliot Kerr, economist at IHS Markit.
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Despite industrial activity partially resuming after April 20, manufacturing activity could not kick in fully. New orders fell for the second-month running. Also, dearth of labour and raw material remained widespread, while supply chains could not be established, said industry bodies. As a result, firms continued to cut back production midway through the second quarter, the survey said.
Weak demand from international markets added to the deteriorating sales trend, with new business from abroad plunging further in May. Anecdotal evidence suggested that global measures to stem the spread of COVID-19 continued to stifle exports. In April, the rate of contraction in exports had risen sharply and outbound sales had dropped at the quickest pace in over 15 years.

Economists hope April and May will be the harshest months of FY21. “Most industry was closed in April and the effect lingered on till May, Difficult to say it at this point but chance of growth looks slim in the short term given the challenges,” said Devendra Pant, chief economist, India Ratings and Research.
Experts predict overall industrial production for April—data for which will be released later—will show a major fall of 75-80 per cent. According to data from the Index of Industrial Production, a collapse in manufacturing sector had led to industrial output falling by 16.7 per cent in March, when lockdown had been in force for just five days.
The PMI survey however showed that manufacturers remained optimistic towards the one-year business outlook in May.

MARKET: Sensex surges 1,028 pts, oil & gas stocks rally; India VIX down 10%

A surprise expansion in China's manufacturing activity in March lifted investor sentiment on Tuesday, thus leading to around 4 per cent rally in the benchmark indices. China’s official Purchasing Managers’ Index (PMI) rose to 52 in March from a collapse to a record low of 35.7 in February.
The S&P BSE Sensex gained 1,028 points or 3.62 per cent to settle at 29,468.49 on the last day of the financial year 2019-20 (FY20). Of 30 constituents, 26 advanced and 4 declined. FMCG major ITC (up around 8 per cent) emerged as the top gainer of the index. RIL (up around 8 per cent), ONGC (up 7.64 per cent), and Tata Steel (up over 6 per cent) were the other major gainers.
NSE's Nifty ended at 8,598, up 317 points or 3.82 per cent.
Oil and gas stocks gained big during the day on sharp decline in the crude oil prices. The S&P BSE Oil & Gas index rallied around 9 per cent to 10,021 levels. BPCL, HPCL, and GAIL were up in the range of 15-8 per cent. READ MORE
FMCG and metal stocks too made decent advances. While the S&P BSE Metal index jumped over 5 per cent to 5,713 levels, the S&P BSE FMCG index added around 6 per cent to 10,255 levels. Among individual stocks, Nestle India rallied 5 per cent to Rs 16,425 in intra-day trade. The stock ended at Rs 16,289, up around 4 per cent.
Hindustan Unilever (HUL) hit its fresh 52-week high of Rs 2,311.85 in the intra-day session before settling at 2,298, up over 5 per cent. READ MORE

On the other hand, IndusInd Bank tanked around 15 per cent to Rs 351 apiece on the BSE. READ MORE
Volatility index India VIX slipped over 10 per cent to 64.49 levels.
In the broader market, the Nifty MidCap 100 index gained over 2 per cent to 11,704 and the Nifty SmallCap index rose over 3 per cent to 3,595 levels.

Global Markets
Asian shares were set to close out a calamitous quarter by eking out a small rally on Tuesday as factory data from China held out the hope of a revival in activity, even as much of the rest of the world shut down. China’s official manufacturing purchasing managers’ index (PMI) bounced to 52.0 in March, up from a record-low 35.7 in February and topping forecasts of 45.0.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.94 per cent but that still left it down 22 per cent for the quarter, its worst performance since 2008. Shanghai blue chips rose 0.4% and South Korea 1.87%. Japan’s Nikkei eased 1%, to be down 20% since the start of the year.
E-Mini futures for the S&P 500 were flat, EUROSTOXX 50 futures rose 0.7 per cent while FTSE futures fell 0.25 per cent.
In commodity market, oil recovered ground on Tuesday after US President Donald Trump and Russian President Vladimir Putin agreed to talks to stabilize energy markets, with benchmarks climbing off 18-year lows hit as the coronavirus outbreak cut fuel demand worldwide.
(With inputs from Reuters)
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MARKET COMMENT | Vinod Nair, Head of Research at Geojit Financial Services
"Mirroring positive global market, Indian markets also reacted positively on the last day of the financial year. Almost all sectoral indices were up & volatility index was also down by 10%. Chinese economic data, Industrial production numbers improved and helped the global momentum, especially in Metals, Pharma and FMCG. FII selling also slowed down over the last 2 days, although that may not be sustainable. The performance of global market will be the key driver for Indian market in the near-term".
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The S&P BSE Sensex rallied 1,028 points or 3.62 per cent to end at 29,468.49 while NSE's Nifty50 ended at 8,598, up 317 points or 3.82 per cent. 29,468.49
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Feb services PMI falls to 6-month low as inflation hits demand; jobs rise

Services, the dominating sector of the economy, contracted to a six-month low in February, as new work orders suffered amid weak demand, showed the widely tracked Nikkei Purchasing Managers Index (PMI) survey. This is the fourth contraction this financial year (2017-18).
But, firms continued to hire, seemingly considering the contraction to be an aberration.
The PMI for services fell from 51.7 in January to 47.8 in February, lowest since August. The index slipped below the 50-point mark, which separates expansion from contraction. It stood at 48.5 in November last year. PMI had fallen to 47.5 and 45.9 in August and July, 2017, because of adjustments after the goods and services tax (GST) roll-out.
Now, the question is would the decline in PMI affect gross domestic product (GDP) growth in the fourth quarter (January-March) for 2017-18.
There is no direct relationship between the two.
In the second quarter (July-September), PMI services declined in July and August; PMI manufacturing also declined in July. But GDP for the quarter grew 6.3%. In the first quarter (April-June), GDP growth was only 5.7% — though there was no contraction in PMI.
Also, in the third quarter, though PMI services fell in November, GDP growth was at a five-quarter high of 7.2%.
Experts are of the opinion that poor underlying demand affected activity.
“Both activity and new work declined for the first time since November, with rates of contraction being strongest since August, thereby ending the recent recovery experienced by India’s service sector,” said Aashna Dodhia, economist at IHS Markit, and author of the report.
However, firms seemed confident of output growth over the next 12 months. Job growth quickened to June 2011 levels.
The seasonally adjusted Nikkei India Composite PMI Output Index, which maps both the manufacturing as well as services industry, fell from 52.5 in January to 49.7 in February.
On the price front, input cost inflation accelerated to the strongest since November, while charges were raised to the greatest extent since July. An imminent risk to firms’ margins are higher fuel prices, which materialised into the fastest input cost inflation in the overall economy (manufacturing and services) since July 2014, Dodhia said.