India's services sector growth eases in February on slower improvement in demand, pick-up in inflation

New Delhi: India's services sector growth moderated slightly in February as new order growth slowed to a 13-month low amid slower improvement in demand and a pick-up in inflation, a monthly survey said on Wednesday.

The seasonally adjusted HSBC India Services PMI Business Activity Index eased to 58.1 in February from 58.5 in January.

In the Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"India's Services PMI registered 58.1 in February, largely unchanged from January's 58.5, signalling another month of robust expansion in the sector.

"While new order growth slowed to a 13-month low amid rising competition, service providers saw a notable pick-up in international sales and responded with increased hiring to meet operational needs," said Pranjul Bhandari, Chief India Economist at HSBC.

According to panel members, greater client enquiries and marketing efforts supported sales at some units, while a few companies suggested that an increasingly competitive environment dampened growth.

One area of outperformance was exports, as services firms reported gains from many parts of the world, including Canada, Germany, mainland China, Singapore, the UAE, the UK and the US. On average, international sales expanded at the fastest pace since last August.

On the price front, February data highlighted the sharpest increase in operating expenses among Indian services firms in two-and-a-half years. Accordingly, prices charged for the provision of services were raised to the greatest extent in six months.

"Input and output price inflation accelerated, with firms passing higher expenses -- particularly for food and labour -- on to customers, yet business confidence climbed to its highest level in a year as companies looked to broaden their market presence," Bhandari said.

Meanwhile, the aggregate business activity across India rose at the fastest pace in three months during February, buoyed by a substantial improvement in demand and an associated upturn in new business intakes.

The HSBC India Composite PMI Output Index was up from 58.4 in January to 58.9 in February.

"Overall, the composite PMI rose to 58.9, reflecting the fastest pace of private sector activity growth in three months, buoyed by strong momentum in manufacturing," Bhandari said.

Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.

The rate of new order growth at the composite level was broadly similar to that seen around the turn of the year, while job creation accelerated to its strongest since last October.

On the price front, there were quicker increases in both input costs and output charges. Respective rates of inflation climbed to nine- and six-month highs.

The HSBC India Services PM is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.