India services PMI shows business activity on the mend

India’s services sector contracted for a third month running in January, but at a much slower pace as broader business activity appeared to stabilise after a jolt from Prime Minister Narendra Modi’s sudden decision to scrap major banknotes late last year.

The Nikkei India services purchasing managers’ index came in at 48.7 in January, climbing nearly 2 points from December’s level and inching closer to the 50-point mark delineating contraction from expansion.

Output and new orders continued to fall, but at the weakest level since the gauge showed the sector fall into contraction in November. While more than 10 per cent of businesses reported new business fell, often citing problems from demonetisation, over 80 per cent said business flows were unchanged.

Business expectations recovered after hitting a one-year low in December, as 17 per cent of companies surveyed expected increased activity over the coming 12 months on expectations the market would normalise soon, while the remainder foresaw no change.

The services figure combined with a manufacturing PMI reading of 50.4 for last month to boost Nikkei’s composite gauge for business activity in India to 49.4, just below the water line and suggesting continued recovery from December’s 38-month low of 47.6.