Services sector PMI eases in Feb to 60.6 from 61.8 in Jan

India's service sector growth momentum eased in February but remained robust despite a slowdown in new orders and output, according to a private survey released on Tuesday.

The seasonally adjusted HSBC India Services Business Activity Index fell to 60.6 in February from 61.8 in the previous month. A level of over 50 indicates expansion. "A climbdown from a six-month high in January was largely expected, but at 60+, still indicates a sharp expansion rate," said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics, Barclays. Despite the decline, service activity in February was at its second highest level in five months, but milder growth during the month clouded the 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 expect growth in the year ahead, but 2% predict a decline. 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 saw the slowest pace of increase in February.

Despite milder growth in new orders, international sales zoomed, expanding at one of the highest rates in nearly a decade, 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 fell 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. Overall inflation declined to 5.1% in February. Stronger growth numbers indicate that the Reserve Bank of India has room to keep rates on hold for a longer period than anticipated previously.

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.