Services PMI expands again in March, hits five-month high at 51.5

India's services industry in March continued to recover from November's shock big currency-note ban, with business activity expanding for a second month and at a faster pace, a private business survey showed on Thursday.

The Nikkei/IHS Markit Services Purchasing Managers' Index rose to 51.5 in March, its highest level since October, from February's 50.3. A reading above 50 indicates expansion.

A sub-index on new business, an indicator of domestic and foreign demand, climbed to its highest level since October, the month before Prime Minister Narendra Modi created a cash crunch by odering the removal of 86 percent of the currency in circulation.

"India's private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output," said Pollyanna De Lima, an economist at IHS Markit.

"The country's rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures."

Input prices rose for a seventh consecutive month, and at a faster rate than in February, but companies have not completely passed that on to customers, demonstrated by a dip in the prices charged sub-index.

After February's marginal cut in service headcount, the sector in March created jobs at the fastest pace in nearly two years.

Although the pace of new hiring increased only slightly, it was at the fastest pace in nearly two years after firms cut headcount in February. The employment sub-index rose to 51.2 from 49.9.

"By historical standards, the increases in new work and activity remain relatively mild, though growth is likely to gather speed as we head into the new financial year," De Lima said. "This is shown by firms' willingness to hire additional employees and reinforced by stronger confidence towards the 12-month outlook for output."

Service providers were optimistic about growth in the year ahead, with the business expectations sub-index at a four-month high.

India's economy grew 7.0 percent from a year earlier in the October-December quarter, defying expectations in a Reuters poll for a slowdown to 6.4 percent and only slightly slower than the previous quarter's 7.4 percent.

At a meeting on Thursday, the Reserve Bank of India is not expected to make any changes to policy and to leave the repo rate at 6.25 percent, despite inflation remaining below its medium-term target of 4 percent.

A composite PMI, which includes both manufacturing and services, rose to 52.3 in March from 50.7 in February, its highest in five months.