Services PMI dips again in August but still robust

September 3, 2010 11:10 AM EDT

Growth in India's service sector slowed for a second month in August after hitting a two-year peak in June, but businesses were more optimistic about the outlook, a survey showed on Friday.

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The HSBC Markit Business Activity Index, based on a survey of 400 firms, eased to 59.3 in August from 61.7 the previous month, but stayed well above the 50 mark that divides growth from contraction.

The data continued to reflect sharp growth in the Indian service sector, with the strongest expansions in postage & telecommunications as well as services such as sports clubs, the survey showed.

A similar survey released on Wednesday showed India's manufacturing sector expanded for the 17th successive month in August, although at a slightly slower pace than in July, supported by strength in new orders.

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Although all service sector sub-indexes stayed in expansionary territory, half of them fell marginally compared with the previous month.

"Service sector activity, which in India accounts for the bulk of economic output, slowed a little last month," Frederic Neuman, co-head of Asian Economics Research at HSBC, said in the report..

"Meanwhile, the rise in business expectations suggests that activity could re-accelerate in the coming months," he said.

The survey showed business expectations spiked to 72.3 in August from 67.8 in July, with almost half of the panellists saying they expect activity levels to rise over the coming year on the back of an improving global economy.

The input price index fell after having risen in the previous month and wholesale inflation , the most closely watched measure of price pressures, slowed in July to just under 10 percent following five months in double-digits.

High inflation has prompted the Reserve Bank to raise its key policy rates four times this year.

"Monetary officials can hardly afford to relax their guard. Growth remains strong, and there are few signs that input and output price pressures are letting up meaningfully," Neumann wrote.