India logged a services sector growth that is at its weakest pace in over a year during November due to slowing orders, a survey showed on Wednesday, suggesting an economy limping towards its slowest full-year growth in a decade was struggling to re-find momentum.
Services make up nearly 60 percent of India's economic output and any sign of deceleration darkens the outlook for Asia's third-largest economy, as the sector has been the lone bright spot for most of this year.
The HSBC services Purchasing Managers' Index (PMI), based on a survey of around 400 companies, fell to 52.1 in November from October's 53.8, to register a 13-month low.
The 50 level separates growth from contraction compared to the previous month, and while the November reading marked a second straight month-on-month drop, the index has held above 50 for a year now.
"Business activity expanded at a slower pace in November and new business also grew at a slower clip, which in both cases may partly reflect the fewer working days due to the Diwali," said Leif Eskesen, economist at HSBC.
The vast majority of India's over 1.2 billion people celebrated the festival of Diwali last month which meant many services firms remained shut for a few days.
While there is strong overseas demand for Indian services, a looming budget crisis in the United States, if not averted, could put the brakes on exports and slow new outsourced deals for Indian software companies.
Still, firms were more optimistic about the future. The business expectations sub-index jumped almost four points to 72.2 in November from 68.3 in the previous month.
"The forward-looking business expectation index improved notably, with some respondents reporting planned business expansion," Eskesen added.
Also encouragingly, a similar survey released on Monday showed the Indian manufacturing sector in November grew at its fastest pace in five months thanks to strong export orders and a surge in output.
The services survey also showed prices rose at a steady pace from last month, and with both the input and output costs rising sharply in the manufacturing survey, the pressure will remain on the headline inflation rate.
Wholesale prices rose 7.5 percent in October, and for three years the inflation rate has stayed well above the Reserve Bank of India's commonly perceived comfort zone of around 5 percent.
Citing price pressures the RBI has held the key repo rate on hold since April, even as many other central banks around the world have cut rates.
The protracted slowdown has led to a clamour from markets for a rate cut, but HSBC's Eskesen said the PMIs suggest the RBI should continue to hold fire.
The Indian economy grew just 5.3 percent from a year earlier in the quarter to September, government data showed last week, extending its slowdown that began at the start of this year. It is now headed for its weakest full year growth in a decade.
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Indian services growth slowed to 13 month low in Nov: HSBC
(PTI) India's services sector growth declined in November, the lowest pace in 13 months, as new business grew at a slower clip, says an HSBC survey.
The HSBC's Services Purchasing Managers Index (PMI) for November declined to 52.1 in November, down from 53.8 in the previous month, signalling the slowest rate of expansion in the current 13-month sequence.
The index has witnessed significant decline in the last two months after registering the fastest pace of growth in seven months in September. The index has, however, managed to be above the 50-mark which indicates expansion since November 2011.
"Business activity expanded at a slower pace in November and new business also grew at a slower clip, which in both cases may partly reflect the fewer working days due to Diwali," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
However, service providers remain optimistic about the short-term business outlook. Activity in the upcoming year is forecast to increase in line with maintained brand reputation, stronger marketing and anticipated rise in demand.
"The forward-looking business expectation index improved notably, with some respondents reporting of planned business expansion," Eskesen said.
Earlier, an HSBC survey had shown that India's manufacturing sector growth improved in November, registering the fastest pace in five months, driven by a strong pick up in new orders and improved purchasing activity.
Accordingly, the HSBC India Composite Output Index – which maps both the manufacturing and services index – stood at 53.2 in November, slightly down from 53.5 in October, the slowest rate of expansion in 12 months.
On prices, the report said there was persistent inflationary pressure in the Indian private sector as both input and output prices increased.
"Despite the reported moderation in growth, inflation held steady due to firm raw material, fuel and labour cost pressures," Eskesen said.
He further noted that "combined with the stronger growth and inflation readings from the manufacturing PMI, these numbers suggest that the RBI should be inclined to continue to hold fire (keep interest rates unchanged)".
The RBI is scheduled to announce its mid-quarter monetary policy review on December 18. Reserve Bank governor D Subbarao has resisted a widespread call for the growth-propping rate cuts for some time now, citing the elevated inflation.