India's Service Sector PMI Growth Dips Slightly In July

HSBC's services purchasing managers' index -- an index of Indian services sector activity -- posted 54.2 in July, a decline of 0.1 percent compared to 54.3 in June. However, the index for the sector, which constitutes nearly 60 percent of the Indian economy, has remained above the 50-point mark since November last year, indicating growth.

The data depicted an increase in new orders, reflecting the growth trend.  However, the level of optimism among the business groups has been low since March. 

India Composite Output Index, which maps both services and manufacturing activity, also came down to 54.4 in July from 55.7 in June. 

"Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up," said Leif Eskesen, Chief Economist for India & ASEAN at HSBC.

According to HSBC, though new orders at private sector companies in India increased in July, the pace of increase was lower than that recorded in June. New orders increased in both the manufacturing and services sectors with services firms indicating a faster increase.

Meanwhile, India's manufacturing sector witnessed a slowdown in July - the weakest growth rate since November - because of moderation in domestic and export orders amid the sluggishness in the global economy.

"Inflation readings eased, but remain firm on the back of rising wage costs and solid demand. With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient, the RBI has little room to maneuver,'' Eskesen said.

India's headline inflation rate dropped to 7.25 percent on an annual basis in June from 7.55 percent in May, but a poor monsoon along with a slow economic growth is expected to push inflation further up in the coming months.

The HSBC survey of manufacturing activity indicated that the sector grew at its weakest pace since last November, following a sharp decline in export orders.