India's services industry slowed down in June, with growth rate falling to a 7 month low on account of decreasing new orders.
The trend, as measured by Nikkei India Services Business Activity Index, in the growth rate in June was also the second lowest in the last 12 months that witnessed continuous expansion.
The services growth in June fell to 50.3 points as against 51 points seen in May, albeit continuing to expand slowly. A reading below 50 indicates contraction.
Also called the Purchasing Managers' Index (PMI), the survey said that services expectation too had waned for the coming months, but thankfully remained in the positive territory.
"The Indian service sector saw a further cooling of growth momentum in June, the third in consecutive months, with a weaker rise in new business leading to a softer expansion in activity," said Pollyanna De Lima, economist at Markit, which compiles the survey.
De Lima added that "...future expectations dipped to the lowest since February, highlighting concerns regarding the sustainability of the economic upturn."
New Businesses slowed to an 11 month low driven by strong competitive pressures. The quicker expansion in private sector new business was on account of an increase in manufacturing order books outweighing the services slowdown.
Services employment too witnessed marginal growth as only 1 percent of respondents reported job creation. They added that any additional hiring reflected greater output requirements.
Outstanding business also increased first time in five months, however marginally. The respondents said delayed client payments, accumulation of work in hand were the reasons for the increase.
Input prices in the Indian services sector rose on account of increase in prices of vegetable and petrol. Despite accelerating since May, the rate of cost inflation was moderate and below its long-run trend, noted the PMI. The cost to manufacturers increased modestly with regard to purchases.
Prices charged by Indian service providers rose on account of providers wanting to pass on their higher cost burden. The survey noted that having eased since May, the rate of inflation was modest.
Confidence of service providers was at four month low in June. While aggressive marketing campaign is said to act as a saviour, respondents expressed concerns regarding competitive pressures.
PMI Manufacturing Output Index
Contrary to services output, India's factory (manufacturing) output gained momentum in June, with the growth rate climbing to a three-month high on the back of new domestic orders and an uptick in export contracts. The growth increased to 51.7 in June, indicating a firm trend in manufacturing activity in Asia's third-largest economy.
PMI Composite Output Index
A combination of both services and manufacturing growth indices, the composite index clocked a growth of 51.1 in June against 50.9 seen in May. Though the rate remained below its long-run average, it still pointed towards a slight pace in expansion.
Lima noted that India remained a leading performer within the emerging markets at a time when many of its peers are struggling. In a statement with regard to manufacturing, Nikkei noted that the manufacturing sector's rise in output was not matched by an increase in input costs or selling prices, allaying fears of inflation.
"This lack of inflationary pressures provides the Reserve Bank of India with further leeway to boost economic growth through cutting its benchmark rate," Lima noted.