Services slump eases, growth remains elusive: PMI

By Rahul Karunakar

BANGALORE (Reuters) - Indian services firms recovered slightly last month from the worst slump in over four years in September but activity still shrank and a shortage of new orders means a rebound looks some way off, a survey showed on Tuesday.

The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, rose to 47.1 last month from 44.6 in September, which was the weakest reading since April 2009.

But the PMI still lingered below the 50 mark that divides growth and contraction for the fourth consecutive month and with order books still shrinking, albeit at a slower pace, there is little reason to expect a bounce back.

"The continued contraction in service sector activity is testament to the dampening effects of the heightened macroeconomic uncertainty, which is making businesses and consumers more cautious about spending," said Leif Eskesen, chief economist for India at survey sponsor HSBC.

"While activity readings may be stabilising, a notable recovery is not in the cards for a while."

Although the PMI's new business index edged up to 48.0 in October from 45.0 in September, it was the fourth month running that demand has declined.

A manufacturing survey released on Friday showed factory activity contracted for the third straight month in October as order books shrank at a quicker pace.

Dwindling demand and investment has marked a worsening outlook for Asia's third-largest economy in the last few months.

Indeed, forecasts for economic growth in the current fiscal year were cut for the sixth consecutive time in the latest Reuters poll and it is now expected to be well below the decade-low rate seen in the previous year.

The HSBC Markit survey also showed there was no let up in price pressures, suggesting India's inflation rate, which hit a seven-month high of 6.46 percent in September, is unlikely to ease for some time.

That will prevent the Reserve Bank of India from taking any measures to shore up the ailing economy.

Last week, RBI Governor Raghuram Rajan - a high-profile former chief economist at the International Monetary Fund - raised the policy interest rate for the second time in as many months to combat fierce price pressures dogging the economy.

"Despite the weak growth backdrop, the RBI has to keep its inflation guards up to address the lingering inflation pressures," HSBC's Eskesen said.

(Editing by Kim Coghill)