PMI services down to 6-month low in October

PMI numbers has been showing expansion since last Nov

Services, the dominating sector contributing around 60% to India's GDP, expanded at a six-month low in October, showed widely-tracked HSBC Purchasing Managers’ Index (PMI) today. The PMI for services in India fell to 53.8 points in October from 55.8 points in September.

If PMI data matches official data, there could be a major slow down in economic growth, as services are not only a major sector, but also a ray of hope for economic expansion amid hopes of just a marginal recovery in India's industrial sector.

Markit economics, a financial information firm which compiles PMI, said growth in new orders eased slightly and firms scaled back the pace of hiring.

 

Leif Eskesen, HSBC Chief Economist for India and ASEAN, attributed slow down in services in October to delay in payments.
“...outstanding business rose reportedly due to delay in payments, which to some extent could also explain the slower pace of growth in business activity ”, he said.

However, demand remained stronger, Markit Economics said.

PMI Services is showing expansion since November last year, after contracting in October.

Reading above 50 points shows expansion, while below it denotes contraction.

However, Markit Economics said the rate of expansion in output was solid, but the slowest since April.

Since PMI for manufacturing inched up slightly to 52.9 points in October from 52.8 points in September, composite index, which includes both manufacturing and services, also declined to 53.5 points in October from 55 points in September.

However, service providers remain optimistic about the short-term business outlook.
Planned expansions, increased marketing and the launch of new projects were expected to drive output growth, according to findings of the PMI survey.

Job creation in firms was three-month slow in October.

Services companies charged higher prices, stating increasing raw material, petrol, food, gold and rental costs which led to higher output prices.

“It explains why the RBI remains hesitant about easing monetary policy”, said Eskesen.

PMI is a survey based on some 400 private sector firms and is thus only a broad barometer of the economy.

India's economic growth slid to nine-year low of 6.5% in 2011-12, pulled down by 5.3% expansion in the fourth quarter of the fiscal. Economic growth grew marginally to 5.5% in the first quarter of this fiscal, dashing all hopes of 7.6% assumed in the Budget and now even 6.5-6.7% economic growth pegged by the government and its agencies looks a distant dream.

India’s eight core sectors grew seven-month high of 5.1%, giving hopes that industrial production would also expand higher than just 2.1% in August. In fact, industrial growth was quite high in August compared to contraction in the previous two months.

WPI-based inflation stood at 7.81% in September, up from 7.55% in August. RBI kept the repo rate unchanged at 8% in its policy meet on October 30. However, it indicated that it may look at cutting rates from the fourth quarter onwards. It cut cash reserve ratio by 25 basis points, that will infuse Rs 17,500 crore into the system.