Services PMI falls,optimism fades: HSBC

The index for the sector,which makes up nearly 60 percent of the Indian economy,has held above the 50 mark that separates growth from contraction,since November last year.

Service sector activity grew at a steady pace in July,with growth in new orders and employment holding up,said Leif Eskesen,an economist at HSBC.

The survey showed order books grew at the same clip as June,prompting businesses to increase their workforces at a similar pace as in the previous month.

But sagging demand from India’s major trading partners abroad – the United States,the euro zone and Britain – dented hopes for the future among Indian companies in July.

The index measuring business expectations,a gauge of what firms think conditions will be like in a year’s time,fell to 69.5 from 72.9 in June.

Indian firms are also losing confidence because of the government’s inability to push through long-pending policy reforms such as foreign direct investment in the supermarket and airline sectors.

Economic growth which fell to its lowest in almost a decade in the Jan-March quarter. India’s economy grew 5.3 percent in the three months to March – a far cry from the near double digit rates before the financial crisis started in 2008.

Faltering economic growth prompted the Reserve Bank of India to leave its repo rate unchanged at 8 percent earlier this week,after cutting it by a more than expected 50 basis points in April,as high inflation remained a concern.

With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient,the RBI has little room to manoeuvre,Eskesen said.

India’s headline inflation rate fell to 7.25 percent on an annual basis in June from 7.55 percent in May but because of a faltering monsoon – key to volatile food prices – that could pick up again.

In its latest projections the central bank also raised inflation forecasts for the fiscal year ending March 2013,expecting the disappointing monsoon to impact prices.

However,suggesting temporary relief,the input prices sub-index of the PMI survey fell to its lowest since October 2011.

A pick-up in prices from here would weaken calls for policy easing to help pull Asia’s third largest economy back from a slowdown.

Northern India suffered one of its worst blackouts in history in the past week as power grids across a dozen states collapsed,leaving over half of the country’s 1.2 billion population without electricity for days.

The July survey of manufacturing activity showed the sector grew at its weakest pace since last November,hit hard by a fall in export orders and a slump in output.

India’s services growth index falls slightly: HSBC

New Delhi (PTI): India’s services sector growth rate saw a slight fall in July but remained in the positive terrain for the ninth month in a row,amid rise in new orders and employment levels holding up,an HSBC survey says.

The HSBC’s services purchasing managers index (PMI) for July stood at 54.2,tad lower from 54.3 in June.

Despite a 10 basis points dip,the index has kept above the 50 mark,indicating growth,since November 2011.

“Service sector activity grew at a steady pace in July,with growth in new orders and employment holding up,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.

Going forward,a moderation in output is likely as the pace of growth in new orders as also the business sentiment has slumped for the next 12 months.

According to HSBC,though new orders at private sector companies in India rose steeply in July,the pace of increase was lower than that recorded in June.

Besides,even as service providers remained optimistic that activity will rise further over the coming year,the level of sentiment dipped to the lowest since March.

Meanwhile,India’s manufacturing sector witnessed a slowdown in July – the weakest growth rate since November – because of moderation in domestic and export orders amid sagging global economy.

Accordingly,the HSBC India Composite Output Index,which maps both services and manufacturing activity,fell to 54.4 in July,down from 55.7 in June – signalling slowest expansion of output in three months.

HSBC noted that the volume of incoming new work expanded in both sectors surveyed — services as well as manufacturing — with services firms signalling a faster increase.

There was also a slight rise in workforces at Indian private sector firms including both manufacturers and service providers during July.

Inflation eased to some extent in July,but remained firm on the back of rising wage costs and solid demand.

Service providers reportedly passed higher cost burdens on to their clients as labour and raw material prices increased,while,manufacturers handled rise in fuel,labour and raw material costs.

“With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient,the RBI has little room to manoeuvre,” Eskesen said.

In its quarterly monetary policy review on July 31,the Reserve Bank left key interest rates unchanged on fears of deficient monsoon and high inflation.

The RBI has also lowered the economic growth projection for the current fiscal to 6.5 per cent from its earlier estimate of 7.3 per cent,and has raised inflation forecast for the fiscal ending March,2013 to 7 per cent,from the earlier projection of 6.5 per cent.