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Business activity in services and manufacturing rises but at a slower pace: HSBC PMI data

05 Mar 2012 Evaluate

HSBC India Composite Index - which covers both the manufacturing and service sectors - fell from January’s nine-month high of 59.6 to 57.8 due to a fall in both the manufacturing as well as the services sector. On a more positive note, the expansion of overall new work intakes accelerated slightly to reach an eleven-month high marking a rise in business activity for the Indian private sector.

The seasonally adjusted HSBC Services Business Activity Index fell to 56.5 in February from 58.0 in January (the 50.0 no-change threshold separates growth from contraction).Even though it has fallen month-on-month, the sector has been growing continuously for the past 4 months. Service companies are also optimistic of work increasing over the next year and confidence levels are at an eight month high, as per the latest survey.

New business received by Indian service providers in Feb 2012 has increased markedly although the rate of growth has remained unchanged from the previous survey period. The rise in business has been attributed to the acquisition of new clients. Higher new work intakes, supported by marketing initiatives and the good quality of services provided, alongside ongoing improvements in market conditions are expected to boost activity in the coming year.

Manufacturing production growth has also come down though it is still marked. Manufacturers reported a marginal strengthening in new order growth. February data has however signaled that employment in the manufacturing sector has fallen slightly in February. Increase in input prices have eased slightly and have risen at the weakest rate in four months. However, the rate of cost inflation has remained marked and above the long-run trend. Manufacturers have also reported a marginal strengthening in new order growth.

Service providers have also registered slower increases in input prices. Overall charge inflation has also eased, with a faster rise in manufacturers’ output prices offset by a slower increase in charges in the service sector.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC has cautioned that the Reserve Bank India will have to approach the easing cycle cautiously as inflation is likely to hover above the comfort zone. Prices of oil are likely to impact the timing as well as speed of rate cuts by the apex bank.

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