With India’s service sector activity hitting a three month low in February, a case for a rate cut by the Reserve Bank of India has further strengthened.
The Nikkei Services Business Activity Index for February fell to 51.4 from 54.3 in January.
“Although new orders at services firms continued to rise in February, the rate of expansion eased to the weakest since last November as firms reportedly faced strong competition for new work during the month,” said a release on Thursday, adding that service providers raised prices while manufacturers were forced to offer discounts.
A reading above 50 indicates expansion while a reading below 50 shows contraction.
Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output index, that monitors both manufacturing and services sectors, fell to 51.2 in February from January's 11-month high of 53.3.
“India’s economic growth softened during February, with slowdowns evident across both the manufacturing and service sectors. Demand conditions in the country appear to be weak, as indicated by lacklustre increases in new orders,” said Pollyanna De Lima, economist at Markit, which compiles the survey.
Lima however, noted that one of the key findings of the Survey was “fading inflationary pressures, which combined with a stuttering recovery and an increasingly challenging global backdrop open up room for a rate cut”.
But sub-sector data showed that new orders and output rose in four of the six tracked categories, with post and telecommunication and transport and storage being the two exceptions.
Service providers’ confidence on the 12—month outlook for business activity remained positive and panelists indicated that sales could rise with improved marketing campaign. However, the sentiment in February has waned as compared to the previous month.