India's services sector hits 6-month low in October

NEW DELHI: India’s services sector activity dropped to a six-month low in October although business confidence strengthened during the month, a private survey has showed.

HSBC’s Purchasing Managers’ Index for services dropped to 50 in October from 51.6 in the month before, according to data released on Wednesday.

A reading above 50 on this survey-based index indicates expansion while below that underlines contraction.“The revival of reforms post recent state elections, if sustained, should lift growth on a broad basis,” said Frederic Neumann, co-head of Asian Economic Research at HSBC.

The services PMI, compiled by financial information services company Markit, is based on a survey of purchasing executives in about 350 private service sector companies.

The sector, which accounts for over 55 per cent of India’s GDP, has been facing a downturn for over a year, with segments such as banking and real estate facing demand and investment constraints due to high interest rates.

Official data released by the Central Statistics Office showed that the services sector expanded 6.8 per cent in the first quarter of 2014-15 against 7.2 per cent in the year-ago period.“

Service sector activity was unchanged in October since growth in some sectors was offset by contraction in others, such as in the hospitality sector. On the positive side, business confidence rose to the strongest in three months, with the hospitality sector being most upbeat about the outlook,” said Neumann.

Employment growth in the domestic services sector also slowed in October. The rate of job creation was marginal overall and weaker than the long-run series average, said the report.The slump in India’s manufacturing has impacted services activity.The PMI for manufacturing showed a modest pickup in October due to stronger output and new order flows.

Nonetheless, the survey suggested that service sector firms in India remained highly optimistic regarding prospects for activity growth in the coming year.

Backlogs of work at service sector firms in India accumulated at the quickest pace in three months during October.Input price pressures faced by Indian services companies rose in October, in contrast to the cooling prices for manufacturers.

Wholesale inflation fell further to a five-year low of 2.38 per cent in September while retail inflation, the key inflation measure watched by the Reserve Bank of India, eased to a series low of 6.46 per cent during the month.