HSBC Service PMI grows at eight-month high in February

04 Mar 2015 Evaluate

In an encouraging development for the economy, services sector expanded rapidly in February at the fastest growth rate in eight months on the back of significant rise in new business orders even as jobs fell marginally in the sector. Indicating a robust expansion across the sector, HSBC India Services Business Activity Index, which tracks changes in activity at Indian services companies on a monthly basis, rose to an eight-month high of 53.9 in February as against 52.4 in the previous month. A reading above ‘50’ mark indicates that the sector is expanding, while a figure below that level means contraction.

Strong new business growth was the primary factor for the increase in activity. New business increased markedly in February, amid evidence of strengthening demand conditions, weaker inflation rates and market stability. The new business sub-index, which measures demand, jumped to an eight-month high of 54.1 from 52.1, and while optimism moderated it remained fairly high. Among the six monitored categories, Financial Intermediation was the only sub-sector to post falling incoming new work.

However, growth of manufacturing new orders softened during the month and there was rise in backlogs of work that was broad-based by sector, with manufacturers and services firms registering increases. Also, in not so positive development, amid reports of shortages of skilled workers, employment was broadly unchanged from the levels registered in the previous month, which disappointingly ended a two-month sequence of job creation in the Indian service sector.

On the flip side, positive sentiment towards output growth in the year ahead was sustained in February. Almost 26% of panelists anticipated higher business activity over the course of the next year, which they commonly linked to improved market conditions, low inflation rates, increased marketing and favorable exchange rates. Nonetheless, the level of positive sentiment fell since January.

Notably, the data comes on the day when Reserve Bank of India, in a surprise move slashed rates by 25 basis points. Giving its affirmation to the fiscal consolidation measures announced by the government in the Budget, the Reserve Bank of India (RBI) has cut repo rate by 25 basis points or 0.25% to 7.5%. Dr. Raghuram G Rajan in his statement while maintaining the interest rate stance in its sixth bi-monthly monetary policy statement of February 3 in the absence of new developments on inflation or on the fiscal outlook till then, indicated that it will keenly monitor the revision in the consumer price index (CPI) with regard to the path of inflation in 2015-16 as well as the Union Budget for 2015-16. Inflation in January 2015 at 5.1% as measured by the new index was well within the target of 8% for January 2015.

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