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Indian Service Sector Moves Into Expansion Territory For First Time In 11 Months

Service sector activity in India expanded for the first time in 11 months in May, the results of a survey by Markit Economics and HSBC bank showed Wednesday.

The HSBC Services Business Activity Index came in at 50.2 in May, up from 48.5 in April, helped by a rebound in new orders. However, the rate was expansion was very small.

Meanwnhile, the HSBC India Composite Output Index, which measures the performance of both the manufacturing and non-manufacturing sectors, grew for the first time in 3 months coming in at 50.7 in May following the reading of 49.5 score for April.

Among the sub-sectors of the service sector, post and telecommunication and renting and business activities recorded increases in outputs

Input costs continued to rise driven by higher raw material cost and fuel bills. However, the rate of increase eased to the weakest since July 2013. Cost inflation across the private sector dropped to a one-year low.

Output prices rose at the slowest rate since July 2013 in May. This marked the forty-third consecutive month of increase. For the private sector, charge inflation rose at the weakest pace in eight months.

Employment in the service sector remained stagnant in May. Though the manufacturing sector employment rose, staffing levels in the private sector as a whole remained unchanged.

Indian service sector activity is predicted to remain positive in the upcoming 12 months. Marketing campaigns, the end of the elections and the launch of new services are expected to promote new business growth, the survey showed. Nevertheless, the degree of positive sentiment has been remaining unchanged since April.

Frederic Neumann, Co-Head of Asian Economic Research at HSBC, said, "At last, a gradual improvement in services activity, with the index creeping above the 50 level after nearly a
year. Fortunately, this momentum will be further
supported by the strong election results. However, the
RBI is likely to retain its hawkish stance given the
increased risks attached to inflation."

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