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Services PMI rises moderately, employment up

business Updated: Nov 03, 2010 10:47 IST

Reuters
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India's services sector expanded last month at a faster rate than in September, bringing an end to a 3-month decline in the key business activity index, a survey showed on Wednesday.

The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 56.2 in October from 55.6 in September, remaining above the 50 mark that divides growth from contraction for the 18th consecutive month.

The slight upswing in the index was mainly attributed to new business that has remained robust over the last 18 months but is likely to moderate as the pace of growth slowed for the second straight month.

"India's service sector picked up steam in October, with firms continuing to add jobs. The details, however, suggest that services might cool in the coming months, with new business growth decelerating slightly and backlogs contracting," said Frederic Neumann, Co-Head of Asian Economics Research at HSBC.

Employment in the service sector rose for the 19th successive month in October and was the lone sub-index among the six to record a rise. Companies said they were aiming to increase capacity with a sustained rise in workloads.

Input prices faced by companies in the service sector increased last month, although at a slower pace than in September, with panellists predominately attributing this to higher wage costs.

A separate study by The Associated Chambers of Commerce and Industry found attrition levels faced by the service sector in India had edged up to 35 percent in the first half of this year, adding training and recruitment costs to budgets.

Output prices fell for the first time in eleven months indicating Indian companies' were forced to discount tariffs due to strong competition for new business, HSBC said.

The index declined by 2.5 points to 49.4 -- the largest drop among all sub-indices.

Data released earlier this week showed the manufacturing sector in Asia's third largest economy expanded robustly in October, aided by strong output and a sharp rise in new business.

On Tuesday, the Reserve Bank of India hiked the repo rate by 25 basis points to 6.25%, for the sixth time this year, in an effort to reign in inflation that remained "above the comfort level".

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