Services PMI eases to 60.6, consumer inflation hits 2-year low in February

The HSBC India Services Purchasing Managers' Index, compiled by S&P Global, fell to 60.6 last month.

Activity in India's services sector continued to accelerate in February, albeit at a slightly slower pace, according to a business survey that also showed inflationary pressures were cooling.

Union finance minister Nirmala Sitharaman

Tuesday's survey injects a sense of optimism in the industry, the engine of economic growth and jobs, suggesting Asia's third largest economy will continue to grow at a world-beating pace this year after registering 8.4% last quarter.

The HSBC India Services Purchasing Managers' Index, compiled by S&P Global, fell to 60.6 last month from January's six-month high of 61.8 and confounding a preliminary reading for a rise to 62.0.

However, it has stayed above the 50-mark that separates growth from contraction since August 2021.

"India's services PMI suggests that the pace of expansion in the services sector eased in February from January," noted Ines Lam, economist at HSBC.

"Due to a slowdown in growth in new orders and output, services companies' outlook for future business activity, while remaining strongly positive, weakened slightly."

New business - a key gauge of demand - softened to a six month low but has been in expansionary territory for over two-and-a-half years and orders from abroad remained resilient.

However, the outlook for the coming 12 months was not as positive and business optimism was at its weakest since November. Hiring slowed and employment generation was barely in positive territory.

That said, firms got some relief from inflationary pressures with operating costs rising at the weakest pace since December, which was somewhat passed on to customers as prices charged rose at the slowest pace in two years.

India's retail inflation touched a three-month low in January and was expected to remain within the Reserve Bank of India's target range of 2%-6% over the coming months although it will be at least July before the central bank cuts borrowing costs, a recent Reuters poll found.

Despite India's manufacturing industry growing at the fastest pace in five months in February, the slower expansion in services activity brought the HSBC India Composite PMI Output Index lower to 60.6 in February from the previous month's 61.2.