Domestic services PMI drops to 60.6 in Feb

The country's purchasing managers' index (PMI) for the services sector eased to 60.6 in February, according to the HSBC India Services PMI survey by S&P Global. In January, the services sector PMI stood at 61.6.

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

Granular data shows that business activity increased across all parts of the service sector. Finance & Insurance saw the strongest pace of growth by a considerable margin, with the slowest rise registered in real estate & business services.

February data highlights a notable upturn in demand across the service sector, with inflows of new business expanding for the thirty-first month running.

"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," says Ines Lam, economist, HSBC.

According to the survey, new business from abroad placed with services firms in India rose for the thirteenth successive month. Meanwhile, international sales collectively expanded at a solid rate that was among the best in the nine-and-a-half-year series history.

"Operating expenses rose further but did so at the second-weakest rate since August 2020. Higher food, freight and labour costs pushed up input prices," says the survey.

"Indian companies operating in the service sector sought to protect their margins by raising prices charged to customers. That said, the rate of inflation was slight, below its long-run average and cooled to the weakest in two years," it adds.

As per the survey, outstanding business volumes expanded for the 26^th consecutive month halfway through the final fiscal quarter, thus highlighting sustained pressure on the capacity of service providers. The latest increase was mild and the weakest in three months.

In terms of employment, 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.

In terms of outlook, around 26% of companies foresee growth and only 2% anticipate fall. "Where optimism was signalled, firms cited buoyant client appetite, greater publicity and an improvement in customer relations," says the survey.