Services PMI shows stalled growth in October

The overall composite PMI, which combines manufacturing and services sectors, was down to 51 in October, from 51.8 a month ago, according to data compiled by Markit

Growth in India’s services sector, more than half of the country’s economy, stalled in October on the back of stagnating business activity in the sector after five months of growth, the HSBC Purchasing Managers’ Index (PMI) showed on Wednesday.

For October, the PMI fell to 50 from 51.6 in September. The overall composite PMI, which combines manufacturing and services sectors, was down to 51 in October, from 51.8 a month ago, according to the data compiled by Markit. A reading of more than 50 shows expansion, while one below 50 indicates contraction. The PMI for services is based on a survey of about 350 private companies.

For August, the PMI services reading was 50.6; for July, 52.2. The manufacturing PMI for October stood at 51.6. “Services sector activity was unchanged in October, since growth in some sectors was offset by contraction in others, such as in the hospitality sector. On the positive side, business confidence rose to the strongest in three months, with the hospitality sector being most upbeat about the outlook,” said Frederic Neumann, co-head of Asian Economic Research at HSBC. “The revival of reforms after the recent state elections, if sustained, should lift growth on a broad basis.”

Although new work intake increased in October for the services sector, it grew at the weakest pace since May, according to the PMI report. Growth of employment for the sector also slowed in October. And, the backlog of work in the sector accumulated at the quickest rate in three months. The manufacturing sector also reported a rise in backlog for the month.

Input prices faced by Indian services companies also rose in October. However, the rate of cost inflation was unchanged from September and was the joint weakest since November 2009, said the report. As a result, overall, private sector input costs rose at the slowest pace in the current 67-month period of inflation. Average selling prices set by Indian service providers also increased in October. It was, however, muted in comparison to historical data.

The fact that PMI fell despite companies raising prices shows that sustained economic growth is still some time away and could strengthen the calls for Reserve Bank of India governor Raghuram Rajan to cut interest rates. As the PMI is based on a survey, it only gives a broad indication, unlike gross domestic product data.