Services growth eases in April, raises rate cut hopes: HSBC

Services sector growth eased for the second straight month amid weaker demand conditions during April and moderate inflation provides the RBI with more scope for further rate cuts, said a survey today.
The contraction in services sector activity for the second month running, also resulted in some job losses and companies adopted a cost-cautious approach towards hiring, HSBC survey said.
The HSBC India Services Business Activity Index, which tracks changes in activity at the service companies, fell to a three-month low of 52.4 in April from 53.0 recored in March.
A score above 50 indicates that the sector is expanding, while a figure below that level means contraction.

"The slowdown in the Indian service sector continued in April with weaker activity growth reflecting softer demand conditions," Markit Economist Pollyanna De Lima said.
Meanwhile, April data highlighted falling payroll numbers in the Indian services sector. However, the rate of job cuts was only fractional.

"Accompanying the subdued outlook in the opening month of the fiscal year, was a return to job shedding as companies maintained a cost-cautious approach," Lima added.
On the positive side, the confidence among services companies regarding the one-year outlook for activity improved, indicating that firms are optimistic that the current deceleration in growth is a temporary soft patch.

The slower rise in service sector activity was matched by a softer increase in manufacturing production. As a result, the headline HSBC India Composite PMI Output Index fell from 53.2 in March to a six-month low of 52.5 in April, HSBC said.
On prices, HSBC said that in line with rising raw material costs, average input prices in the Indian service economy increased further in April. Nonetheless, the rate of inflation was moderate.
"Inflation rates for both input and output prices were weak by historical standards, providing the RBI with more scope for further rate cuts," Lima said.
Lima further added that an expansionary approach to monetary policy would, at a time when the economy is losing traction, provides much needed support for further growth.

The central bank has lowered its policy rate twice so far in 2015, but maintained a status quo in its last monetary policy review on April 7 on fears of unseasonal rains impacting food prices.
The next review meeting is scheduled on June 2, although the previous two cuts have taken place outside the scheduled policy reviews.