Slowdown in growth in new orders, output drags services PMI in Feb to 60.6

India’s service sector activity continued to expand in February, but a tad lower than January when it had hit a six-month high figure.

A slowdown in growth in new orders and output in the country’s dominant services sector pulled the headline Purchasing Managers’ Index (PMI) figure in February to 60.6 from a six month high of 61.8 in January, according to a survey released by S&P Global in partnership with HSBC on Tuesday.

“India’s service sector continued to grow during February as positive demand trends supported sales and business activity. Growth rates slowed since January, though remained historically substantial,” the survey noted

The February figure marks 31 months of the index remaining above the 50-mark since July 2021. A reading above 50 in the survey indicates expansion of the sector and a figure below that suggests contraction. 

The survey polled around 400 companies in transport, information, communication, finance, insurance, real estate, non-retail consumer and business services.

Granular data showed that business activity increased across all parts of the service sector, with the Finance & Insurance sector seeing the strongest pace of growth by a considerable margin, while Real Estate & Business Services registered the slowest rise.

Ines Lam, economist, HSBC said that India’s services PMI suggests that the pace of expansion in the services sector eased in February from January. 

“Due to a slowdown in growth in new orders and output, services companies’ outlook for future business activity, while remaining strongly positive, weakened slightly. Prices charged for services rose at the slowest rate in 24 months as input prices inflation moderated,” he added.

The survey also noted that Indian companies operating in the service sector sought to protect their margins by raising prices charged to customers, however, the rate of inflation was slightly below its long-run average and cooled to the weakest in two years. 

Outstanding business volumes expanded for the 26th consecutive month halfway through the final fiscal quarter, highlighting sustained pressure on the capacity of service providers. 

The survey also found that new business from abroad placed with services firms in India rose for the thirteenth successive month as the survey participants reported gains from Australia, Asia, Europe, the Americas and UAE. 

“Collectively, international sales expanded at a solid rate that was among the best in the nine-and-a-half-year series history,” the survey noted.

On the employment front, companies created jobs on the back of rising workloads, but the easing of capacity pressures and lower confidence towards the outlook dampened employment growth.

“With backlogs rising more slowly, services companies tamed recruitment during February. The pace of hiring growth was fractional and the joint-slowest in the current 21-month sequence of job creation. Survey members mostly indicated that workforce numbers were sufficient for current requirements,” the survey said.