HSBC India Services PMI Number Hits 17-Month Low

With the HSBC Manufacturing and Services PMI slowing down, next month’s RBI policy meet might witness another rate cut.

The flow of negative news does not seem to end for the Indian economy. It has already encountered a disappointing current account deficit (CAD) number and the slowest growth (in the last 16 months) in India’s manufacturing for March 2013, indicated by HSBC India Manufacturing Purchasing Managers' Index (PMI). To add to these woes, the HSBC India Services PMI for the month of March 2013 came in yesterday. The reading of 51.4 in March 2013 came down from 54.2 in February and is the slowest in the last 17 months. Any reading above 50 shows growth and below 50 indicates contraction. 

The reason for such slowdown as explained by Leif Eskesen, Chief Economist for India and ASEAN at HSBC is “a considerable slowdown in growth in the service sector activity due to a deceleration in new business flows.” Moreover, backlogs of work and hiring rose at a slower pace in the month.

Although the index posted well below its long-run series average of 57.2, there were more inflows of new businesses that resulted in higher backlogs of work. To clear these backlogs, the service sector firms added employees during the month of March 2013. This is the 13th month in a row for the service sector to have added new employments. Also, service providers have signalled the strongest degree of confidence in business growth in the last three months. This was largely supported by the expectations of a stronger demand and planned investments in marketing.

All these slowing growth numbers might prompt the Governor of the apex banker to go for other rate cut in its next policy meeting slated for May 2013. This receives a further support from the slowest growth in cost inflation year to date and a similar trend visible in output pricing. This indicates that there is some moderation in inflation. However, looking at the sticky consumer price index (CPI) at a higher level, the magnitude can be limited.