Service sector grows at moderate pace in December, shows HSBC survey

Services sector activity in the country expanded in December, but at a slower pace as firms received lesser number of new orders as compared to the previous month, a monthly HSBC survey said on Tuesday.

In November, the service sector had recorded fastest pace of expansion in five months.

The HSBC India Services Business Activity Index, which tracks changes in activity at domestic services companies on a month-by-month basis, stood at 51.1 in December - down from 52.6 in November, indicating a moderate expansion in business activity in the reporting month.

A score above 50 means that the sector is expanding, while a figure below that level indicates contraction.

Both activity and new orders in the domestic services sector expanded in December, though at lower rates compared with the previous month, HSBC Chief India Economist Pranjul Bhandari said.

Within the services sector activity, all but the financial intermediation sub-sector saw an expansion in order books.

In our view, growth in financial intermediation is key for funding a meaningful pick-up in economic growth, Bhandari added.

Meanwhile, staffing levels in the service sector increased in the reporting month, reversing the trend recorded in November.

Business confidence strengthened in December, despite slowdowns in growth of activity and new orders. "The degree of positive sentiment among Indian service providers was robust overall," HSBC said.

Meanwhile, the headline HSBC Composite Output Index - that maps manufacturing as well as services sectors output - stood at 52.9 in December, down from 53.6 in November.

Private sector activity in the country witnessed growth for the 8th consecutive month and was mainly driven by manufacturing output, which rose at the quickest pace in two years in December.

On price rise, Bhandari said that inflationary pressures from both input and output prices remained modest.

Reserve Bank of India (RBI) Governor Raghuram Rajan, during the last monetary policy review in December 2014, kept interest rate unchanged, saying that a shift in stance is 'premature' but hinted that a cut may come in early 2015 if inflation continues to ease and government acts on the fiscal side.

Accordingly, the repo rate continues to be at 8 per cent while the cash reserve ratio has also been retained at 4 per cent.