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HSBC India Services PMI recovers bit from four years low; stays below 50 mark

05 Nov 2013 Evaluate

After slumping to over four years low level in September, the activity in services sector, which makes up of nearly 60% of country’s economic output, rose from 46.1 to 47.5 in October. Nonetheless, HSBC India Composite Output Index posted below the 50.0 no-change mark for the fourth successive month in October, indicating a further contraction.

Sector data indicated a fall in business activity in five out of the six categories monitored by the survey, with the sharpest decline noted at Hotels & Restaurants. Further, the lower levels of private sector output mirrored a further decrease in new business flows. Although the PMI's new business index edged up to 48.0 in October from 45.0 in September, it was the fourth month running that demand has declined. While, the incoming new work contracted at slower pace in services, it quickened for manufacturing.

On the employment front, four of the six monitored service categories posted job shedding, the exceptions being Renting & Business Activities and ‘Other Services. Meanwhile, Inflation rates in the Indian private sector rose during October, with input prices increasing at the quickest pace in 16 months and the rate of charge inflation climbing to a seven-month high.

However, in a positive sign, robust optimism regarding output growth in the coming year was sustained during October. Launch of new services, planned increases in marketing budgets and forecasts of better economic conditions are indicated to support demand growth in the year ahead as per the survey.

Nevertheless, continued contraction in service sector activity is testament to the dampening effects of the heightened macroeconomic uncertainty, which is making businesses and consumers more cautious about spending. Worryingly, the survey also underscores that Reserve Bank of India would have to keep up its inflation guards up to address the lingering inflation pressures. These view echoes with the view of manufacturing PMI data, which also asserted that India’s Apex Bank will have to continue its staring contest with inflation.

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