COVID-19: India’s PMI Contracts In March As Exports Fall

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COVID-19: India’s PMI Contracts In March As Exports Fall
Yagnesh Kansara - 09 April 2020

Mumbai, April 9: The global COVID-19 pandemic has cut short the good times in India’s services sector, which contracted in March because of fall in overseas demand and exports, received a hard knock, according to a monthly survey released recently.

The Nikkei India Services Purchasing Managers Index (PMI) dropped steeply from February’s more than a seven-year high of 57.5 to 49.3 in March. In PMI parlance, the 50-mark threshold separates expansion from contraction.

Experts had hoped the services sector scaling an 85-month high in February would help it to tide over the ongoing corona crisis as rising new orders from overseas markets had created stable growth.

But in March, the firms surveyed said client demand had severely been dented because discretionary spending was put aside owing to public health measures. This was in line with the contraction seen in the manufacturing sector, which fell to a four-month low of 51.8 in March, down from February’s 54.5, a similar survey release last week showed.

Exports fell by their sharpest margin since September 2014. This was despite the rupee depreciating throughout the month. The rupee was valued at Rs 72 to the dollar when March began and ended a sharp downward run to close at Rs 76 to the greenback on April 1.

Sugandha Sachdeva, VP-Metals, Energy & Currency Research, Religare Broking said, “Recent appreciation seems like a short-term breather for the rupee. However, the bias still remains downwards, considering weak sentiments and that the impact of the virus will be felt in the coming quarters.”

Broadly, the Indian Rupee (INR) is likely to trade in the 75.40-76.25 band in near term. If 76.25 mark is breached, rupee looks poised to depreciate towards 77.50 eventually, she added.

As INR depreciated, employment levels broadly stagnated in India’s private sector as slight growth in manufacturing was offset by a mild drop in staffing levels across the service sector. Services firms, however, saw mild job shedding as a large majority of firms — 93 per cent — left payroll counts unchanged, the PMI survey showed.

Even during February’s boom period, the number of jobs created had fallen to a three-month low. The latest survey data pointed to the first fall in order book volumes for service providers since September last year. The drop in demand was the sharpest in just over two years. A number of firms also mentioned lower sales as a result of liquidity issues.

Bur there was evidence of capacity pressure being generated, albeit to a lesser degree, the survey pointed out. Backlogs of work rose at a weaker rate in March.

Industry insiders, however, fear the downturn in March could be worse. “The March PMI data showed business activity falling mildly. Crucially however, the survey data collection (March 12-27) was concluding just as Prime Minister Narendra Modi ordered a complete lockdown of the country,” said Joe Hayes, economist at IHS Markit, which conducts the survey.

But firms are optimistic activity would rise over the next 12 months as the extreme measures to curb the spread of COVID-19 are lifted and global demand begins to recover. That said, the level of confidence dipped to a five-month low.

Suppliers cut fees due to low demand. Output charges rose at a pace that was softer than in February and below its long-run average. The seasonally adjusted Nikkei India Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of GDP, fell to 50.6 in March, down 7 percentage points from February’s 57.6 to signal a slowdown in private sector output growth.

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