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Services sector growth slowed in February

For India’s services sector, growth in new orders and output slowed in February, denting business confidence levels and resulting in a fractional uptick in employment that was the slowest in 21 months, as per the HSBC India Services Business Activity Index also known as the Purchasing Managers’ Index or PMI.

The seasonally-adjusted PMI print for Services eased to 60.6 in February from 61.8 in January. A reading of over 50 on the index indicates growth in activity levels. Surveyed firms reported the second-weakest input cost pressures since August 2020 and raised prices at the mildest pace in two years.

The Services PMI contradicts the signals put out by the HSBC India Flash PMI for last month, which is based on early responses from surveyed firms. For Services, the Flash PMI had indicated that output rose at a seven-month high pace and fresh contracts surged at the fastest rate in a decade in February, with the index rising to 62.

“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,” HSBC economist Ines Lam noted.

The index ascertains business confidence levels on the basis of firms’ outlook for the year ahead. Around 26% of companies foresee growth and 2% anticipate a fall, as of February.

On the bright side, new business from abroad rose for the thirteenth month in a row, and at a pace that was among the best in nine and a half years. Overall, Finance & Insurance saw the strongest pace of growth by a considerable margin, with the slowest rise registered in Real Estate & Business Services.

Taken together with the Manufacturing sector’s performance last month, with its PMI rising from 56.5 in January to 56.9 last month, overall private sector output in India slipped in February. The HSBC India Composite PMI Output Index slipped from a six-month high of 61.2 in January to 60.6, a note on last month’s index said.

“Rates of expansion were broadly similar at manufacturers and services firms, though the former registered an acceleration and the latter a slowdown. The service sector led with regards to cost inflation, posting a sharper increase than its manufacturing counterpart. At the composite level, input prices rose at the slowest pace since August 2020,” the note explained.

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