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May Services PMI Bounces

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India's services sector grew at its fastest pace in three months during May, and firms were more optimistic about the year ahead, a survey showed on Tuesday.

HSBC's services purchasing managers' index, compiled by Markit, rose almost two points to 54.7 in May from 52.8 in the previous month. It has posted an above-50 growth reading since November. (Above 50 reflects expansion while below 50 represents contraction.)

The index measuring business expectations jumped to a 15-month high of 76.7 last month from 73.8 in April, more than 14 points above its March level.

"Activity re-accelerated, new orders came in at a faster pace, and employment continued to increase. As a consequence businesses were more optimistic about the outlook for the coming 12 months," said Leif Eskesen, economist at HSBC.

The latest PMI reading contrasts with weak GDP data last week showing Asia's third largest economy grew at its slowest annual pace in almost nine years in the three months to March.

Indian gross domestic product expanded at an annual 5.3 per cent in the Jan-March quarter, a sharp slowdown from 9.2 per cent growth a year ago, government data showed.

The slowing economy forced the Reserve Bank of India to cut interest rates for the first time in three years on 17 April but the central bank warned there was limited scope for more, a view endorsed by HSBC's Eskesen in the light of the PMI data.

"While the more backward-looking GDP numbers suggest rising growth risks and pressures on the RBI to cut rates, these numbers suggest... that there is no room for aggressive monetary policy easing over the near-term," Eskesen added.

The latest PMI survey showed input prices grew at their fastest pace in five months while the prices charged index was at its highest level since January.

The services sector contributes about 55 per cent of GDP and any slowdown would have meant the economy was headed for a bumpier ride through the year.

Worries about the health of the United States economy and the euro zone staggering through a debt crisis have curbed spending on outsourcing services by the western clients of Indian software companies.

In the last few months, Infosys Ltd and Wipro Ltd, giants in India's $100 billion software and back-office services sector, have forecast muted revenue growth for the current financial year.


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