Service activity eases to 60.6 in February; optimism dips

A slowdown in growth in new orders and output led to service activity easing to 60.6 in February compared with 61.8 in the previous month, according to results of a private survey released Tuesday.

The seasonally adjusted HSBC India Services Business remained above the 50 level, which separates expansion from contraction, but a milder growth affected business outlook.

“Due to a slowdown in growth in new orders and output, services companies’ outlook for future business activity, while remaining strongly positive, weakened slightly,” said Ines Lam, economist, HSBC.


Of the 400 firms surveyed for the period, 26% still expected growth in the year ahead, but 2% expected a fall. Employment suffered with survey members indicating that employment numbers were sufficient.

“Where optimism was signalled, firms cited buoyant client appetite, greater publicity and an improvement in customer relations,” the report noted.

While finance and insurance recorded the strongest pace of growth among all services, real estate and business services recorded the slowest rise in February.

Despite milder growth in new orders, international sales zoomed, expanding at one of the highest rates in nearly 10 years, with firms reporting gains from Australia, Asia, Europe, the Americas and the UAE.

New business from abroad expanded for the thirteenth successive month in February.

India’s service exports were likely up 6% to $284.5 billion in the first 10 months of the fiscal, according to estimates released by the government last month.

On the inflation front, there was more good news as input costs witnessed the second slowest rise in 42 months, leading to output prices also declining.

“Prices charged for services rose at the slowest rate in 24 months as input prices inflation moderated,” said Lam.

Services inflation declined to its lowest level of 3.3% in over four years in January and is likely to stay subdued in February as well, keeping core inflation contained.

ET recently reported that core inflation is likely to stay subdued around 3% for the near term.

Overall inflation declined to 5.1% in February. Stronger growth numbers indicate that the Reserve Bank of India has wiggle room to keep rates on hold for longer period than earlier anticipated.

Experts indicate that the central bank’s monetary policy committee is likely to hold the policy rate at 6.5% for the seventh time at its next meeting in April.