June services PMI picks up but at a slower pace

India’s services sector in June expanded for the eighth straight month although at a slower clip, but new orders picked up and firms hired workers at the fastest pace in a year, a business survey showed on Wednesday.

HSBC’s services purchasing managers’ index, which gauges the activity of around 400 firms in India, dropped to 54.3 in June from 54.7 in May. However, it has kept above the 50 mark that signifies growth since November.

The survey showed order books filled at their strongest pace in four months, riding high on domestic consumption.

 But sagging demand from India’s major trading partners abroad, the United States, the euro zone and Britain, dented hopes for the future among Indian companies in June.

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“While service sector activity grew at a slightly slower pace, new orders grew faster and this should hold up activity in coming months,” said Leif Eskesen, economist at HSBC.

The services sector contributes nearly 60 percent to the overall Indian economy.

The survey also showed firms added jobs at a faster pace in June to deal with the surge in new business and cut backlogs. Its jobs index rose to 51.1 in June from 50.5 in May.

“And businesses remained relatively optimistic about the outlook for the coming 12 months, although sentiment eased a bit from the previous month,” Eskesen added.

India once held the baton for the growth story of emerging nations, but it faces a tough battle to keep up with emerging peers China and Brazil.

Abroad, the euro zone continues to reel from its sovereign debt crisis, despite a summit of European leaders last week that put forward some steps to ease the region’s economic troubles.

That, combined with stuttering growth in the United States, has crimped on global economic sentiment and has hit confidence about the future in corporate boardrooms across the world.

The Indian services PMI business expectations index fell four points since May.

India’s economy grew at an annualised pace of 5.3 percent between January and March this year, its slowest pace in nine years and a far cry from the nearly 10 percent growth regularly clocked before the onset of the crisis in 2008.

The PMI showed consumers continued to be charged high prices for finished goods as input prices rose at the same pace as last month, offering the Reserve Bank of India little room for maneuver.

“Inflation readings for input and output prices were broadly unchanged from May and remain high by historical standards. Together with manufacturing PMI, these numbers suggest that it is hard to build a strong case for policy rate cuts in the near term,” said Eskesen.

The RBI unexpectedly kept interest rates on hold at eight percent at its meeting last month, as inflation worries persist, placing the onus onto the government to revive the economy.

India’s factory output rose at a faster pace as production and employment levels increased but reduced foreign demand has taken its toll on new export orders, another PMI showed on Monday.

Reuters