Services PMI cools to 3-month low, rate cut hopes brighten

Growth in India`s services industry slowed sharply in February as rising prices lead to a slight deceleration in demand, a business survey showed on Thursday.

New Delhi: India's economic growth slowed in February and the services sector activity fell to a 3-month low amid subdued growth in new orders, a monthly survey showed today, adding to expectations of a rate cut by the Reserve Bank.

The Nikkei Services Business Activity index fell to a 3-month low of 51.4 in February, from 54.3 in January, as increase in prices led to muted demand.

Although new orders at services firms continued to rise in February, the rate of expansion eased to the weakest since last November as firms reportedly faced strong competition for new work during the month, the survey noted.

Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output index, which maps both manufacturing and services sectors, dipped to 51.2 in February from January's 11-month high of 53.3.

"India's economic growth softened during February, with slowdown evident across both manufacturing and service sectors," said Pollyanna De Lima, economist at Markit, which compiles the survey, adding that demand conditions in the country appear to be weak, as indicated by lacklustre increase in new orders.

Meanwhile, service providers' confidence with regard to the 12-month outlook for business activity remained positive, with panelists indicating that improved marketing campaign is likely to drive sales. However, sentiment waned since January.

"Although PMI data still signal expansion in output and incoming new work (orders), recent figures are considerably low by historical standards," Lima said.

On RBI's policy stance, Lima said the falling price pressures and global economic challenges may open up room for a dovish policy.

"One centrepiece of the latest survey result is evidence of fading inflationary pressures which combined with a stuttering recovery and an increasingly challenging global backdrop open up room for a rate cut," Lima added.

RBI Governor Raghuram Rajan on February 2 had left the key interest rate unchanged, citing inflation risks and growth concerns.