“While service sector activity grew at a slightly slower pace, new orders grew faster and this should hold up activity in coming months,” said HSBC chief economist for India and ASEAN Leif Eskesen
New Delhi: India’s services sector activity inched up in June—the eighth straight month of growth— wherein there was a marked rise in new business orders and moderate job creation, a business survey noted, reports PTI.
The HSBC India Services Purchasing Managers Index (PMI)—an index of Indian services sector activity—rose to 55.7 in June, slightly up from 55.3 in May—registering the fastest expansion of output in four months.
The index has moved up for eight months in a row. A reading above 50 shows the sector is growing, while below 50 indicates that the segment is contracting.
“While service sector activity grew at a slightly slower pace, new orders grew faster and this should hold up activity in coming months,” HSBC chief economist for India and ASEAN Leif Eskesen said.
Service providers increased their staffing levels in June, marking a four-month sequence of expansion, thereby helping in the reduction of work backlog.
The increase in payroll numbers was the strongest since June 2011 but was below the long-run average for this series, HSBC noted.
Although sentiments eased a bit from the previous month, companies remained relatively optimistic about the outlook for the coming 12 months.
Business expectations remained positive at services companies in June. Although the level of optimism dipped to the lowest since March, sentiment was still above the long-run series average, said HSBC.
However, there was no respite from inflationary pressures as input price inflation was recorded for the thirty-ninth month running.
Input prices rose sharply at Indian services companies in June, with the rate of increase remaining same as the previous month. In a similar vein, output prices also increased in the services sector in each month since November 2010.
Meanwhile, India’s wholesale inflation was 7.55% in May. At the retail level, the Consumer Price Index (CPI) inflation for May was 10.36%.
According to HSBC, India’s manufacturing sector expanded at the fastest pace in four months in June driven by improvement in business conditions as well as hiring.
“Together with manufacturing PMI, these numbers suggest that it is hard to build a strong case for policy rate cuts in the near term,” Mr Eskesen said.
In its mid-quarter monetary policy review on 18 June 2012, the Reserve Bank of India (RBI) chose to leave key interest rates on hold.
The Indian economy is grappling with slow growth and high inflation rate.
India’s economic growth rate slowed to a nine-year low in March quarter at 5.3%, and 6.5% for the entire 2011-12 fiscal. The 2011-12 growth was lower than 6.7% seen in 2008-09 amid the height of global financial crisis.
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Although India faces many challenges, overseas investors should stay committed to investments in India
Global investment bank, UBS, is of the view that liquidity will improve in the stock market in India, and that its attractive valuations will help perform better in relative terms.
UBS has upgraded Indian stocks to ‘overweight’. Compared to growth markets in Southeast Asia, the Indian market has attractive valuations. Improvement in trade balance will, in turn, push up liquidity in the market.
Although India faces many challenges, overseas investors should stay committed to investments in India. The challenges will not only be political, but also in balance of payments.
“We think the risk is worth it—that either improved risk appetite globally helps lower domestic rates, or that in the coming months an improving trade balance does the same," UBS said.