Services sector contracts for 2nd month as new orders dry up

Raising concerns about India's economic growth momentum, a survey today showed that the services sector contracted for the second consecutive month in June as new orders declined for the first time in 14 months.
The deterioration in the key services sector, coupled with weakening manufacturing output, may add to the clamour for further rate cuts by RBI but comes at a time when rating agencies like Fitch and Moody's have flagged a weak business environment and an urgent need to speed up the reforms.
The Nikkei India Services Business Activity Index, which tracks changes in activity at service companies on a monthly basis, fell to 47.7 in June, down from 49.6 in May -- its lowest level since March 2014.

A reading below 50 means contraction in the sector.
A composite index for the services and manufacturing sectors in June also showed a contraction for the first time in 15 months, after a modest growth in the previous month.
As per the Nikkei index, which was earlier known as HSBC PMI, around 16 per cent of survey participants reported lower new business and said extreme heat and competitive pressures hampered the demand.

"The heatwave and competitive pressures were again reported to have weighed on service providers' performance. However, companies are hopeful of turning the corner in coming months, with confidence regarding the 12-month outlook remaining strong," said Pollyanna De Lima, an economist with Markit which compiles the data for the survey.

The index has slipped below the crucial 50 mark, which separates growth from contraction, for the second straight month.
Global rating agency Fitch has lowered India's economic growth projections to 7.8 per cent for the current fiscal from 8 per cent earlier and has said the country's business environment is relatively weak compared with peers and will take time to turn around.
Moody's also said earlier this week that subdued rural economy is a 'credit negative' for India's sovereign rating and raised concerns about risk of policy stagnation and "some disappointment" has emerged over the pace of reforms under the Modi government.

Meanwhile, the Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, fell to 49.2 in June from 51.2 in May, below the crucial 50-level for the first time since April 2014.
Experts said the weakness in the two key components of the economy may force the Reserve Bank to consider further rate cuts, provided inflation remains under check.
In its last policy review on June 2, RBI had cut the repo rate by 0.25 per cent for the third time this year to spur investment and growth, but hinted that there may not be any more cuts in the near term.