India's services PMI falls for 3rd consecutive month

New Delhi: India's services sector witnessed a significant decline in the month of March amid slower rise in new business orders and a dip in business sentiment, a survey by HSBC Wednesday said.

According to the HSBC Purchasing Managers Index (PMI) data, the seasonally-adjusted HSBC Services Business Activity Index, posted 52.3 in March, down from 56.5 in February. In January, it stood at 58.

A score above 50 indicates growth in the sector, while a reading below 50 means the segment is contracting.

"Activity in the service sector decelerated notably in March, although it is still expanding. New business also ticked in at a slower pace and the sentiment gauge took a dive," HSBC Chief Economist for India and ASEAN Leif Eskesen said.

India's manufacturing sector also witnessed the third consecutive month of decline in March as output and new order growth weakened amid power cuts leading to capacity constraints.

Service companies noted that rising prices had restricted the latest increase in new business. Overall, the rate of new order expansion slowed to a four-month low.

The HSBC survey further said that confidence sunk sharply since February, largely as "concerns over the latest budget announcement weighed on sentiment."

The general perception of the market about the latest Budget was that it was neither bold nor reformist. Besides, there were no big announcements in the Budget.

The survey said prices charged and input prices rose at a faster pace and sequential inflation remained above the historical average, indicating that a further uptick in inflation is likely.

Wholesale price-based inflation, which remained high during most of 2011, has started showing signs of moderation but rose to 6.95 percent in February, against 6.55 percent in the previous month.

RBI had left all key policy rates unchanged during its March 16 review of the third quarter policy, citing persistence of inflation risks due to rising global crude oil prices, a weak fiscal position and a vulnerable exchange rate.

"With inflation pressures still firm, the RBI will have to approach the easing cycle cautiously, and it may have to stay on the sidelines if the inflation outlook does not improve significantly soon," Eskesen said.

There was a marginal increase in employment in the Indian services sector. Job creation has been recorded in three of the last four survey periods, although the gains in staffing have been marginal in each instance.