HSBC services Purchasing managers' Index recovers from four-and-a-half year low.
The festive season, known to be the best period for Indian businesses, may not have started on a cheerful note. The production levels in India’s private sector continued to contract for the fourth consecutive month in October. The pace of fall, however, moderated.
India’s composite output Purchasing Managers’ Index (PMI) was at 47.5 in October from 46.1 in the previous month. The index indicates contraction if below 50 and expansion when above. It has been below 50 since July.
The services sector data pointed to a similar trend. HSBC Services Business Activity Index rose to 47.1 in October from 44.6, which was a four-and-a-half year low.
The data reflected fall in new work orders due to worsening client confidence, economic instability, competitive pressures and cyclone Phailin. Led by hotels and restaurants, new orders fell in all six service sub-sectors for the second straight month.
“The continued contraction in services sector activity is testament to the dampening effects of the heightened macroeconomic uncertainty, which is making businesses and consumers more cautious about spending,” said Leif Eskesen, chief economist for India & ASEAN at HSBC. He said that notable recovery may still not be on the cards.
On the job front, hiring across the Indian private sector was only marginal with little change seen in the staffing levels seen with service providers in October.
Inflation continued to be high, with input prices increasing at quickest pace in 16-months and output prices climbing to a 7-month high.
This may lead to further policy rate hikes in coming months, experts said. A week ago, the Reserve Bank of India (RBI) hiked key policy rate by 25 basis points for the second time in less than two months in order to check inflation.
“Despite the weak growth backdrop, the RBI has to keep its inflation guards up to address the lingering inflation pressures,” said Eskesen. India’s central bank expects inflation, both at wholesale and consumer level to stay high for rest of the financial year.
The key policy rate, or the repo rate, is 7.75% currently. The repo rate is the rate at which banks borrow overnight funds from RBI by pledging government securities.
Going forward, the panelists at PMI Survey expect launch of new services, planned increases in marketing budgets and forecasts of better economic condition to support demand growth in the year ahead. Broadly, stronger exports and better agriculture output are expected to be key drivers of economic growth in India.
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