Services sector contracts for 7th straight month: PMI

In January, India’s services sector contracted for a seventh consecutive month, showed the HSBC Purchasing Managers’ Index (PMI).

The index stood at 48.3 points in January, against 46.7 in December 2013, Markit Economics, which compiled the data, said in a statement. A reading of more than 50 shows expansion, while one below 50 indicates contraction.

In the quarter ended September 2013, India’s economy expanded 4.8 per cent, against 4.4 per cent in the quarter ended June. In the first two months of the quarter ended December, the manufacturing sector had contracted, while merchandise exports rose only in single digits. As such, many had pinned hopes of an economic recovery on the services sector.

Official advance data for gross domestic product for 2013-14 is slated to be released on Friday.

In January, the manufacturing sector had expanded, with the HSBC PMI for the sector standing at 51.4 points, against 50.7 in December 2013. As such, the composite PMI for January stood at 49.6 points, compared with 48.1 in December. This was the seventh consecutive month when the composite PMI reading was below 50.

Respondents in the PMI survey cited tough economic conditions, political hurdles and low new-order levels as reasons behind the fall in output, said Markit Economics. The data came on a day when Finance Minister P Chidambaram expressed doubt over the passage of key Bills in the current session of Parliament, the last before the Lok Sabha elections.

Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, said, “Services sector activity remains weak and broad-based, though post & telecommunications led the softening in January.”

InvestCare, a wealth management advisory, said at the macro level, retail and wholesale trade, which accounts for a quarter of the services space, was one of the major reasons behind the contraction. “Similar contractions were observed in the communications and real estate sectors,” said Samar Vijay, director of InvestCare.

In January, services companies reported a fall in new business for the seventh straight month. Respondents in the survey pointed to increased competition for new work, deteriorating confidence among clients and weaker underlying demand. However, despite low new business levels, service providers hired more workers in January, owing to expectations of more new orders in the coming months.

With employment in the manufacturing space also seeing a rise, recruitment across the private sector increased for the second consecutive month.

Services companies are optimistic business activity will expand through the next year. It is expected the growth will be supported by planned increases in marketing, pointing to better demand and an overall improvement in the economy.

Meanwhile, input cost inflation in the private sector hit a three-month high, while inflation in output costs didn’t change much compared to December.

“Despite the weak growth backdrop, RBI (Reserve Bank of India) has to stick to its hawkish bias to get inflation under control and, through this, eventually pave the way for a recovery in economic activity,” Eskesen said.