Asian stocks are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.03% while the Hang Seng is up 1.30%. The Nikkei 225 is trading up by 2.12%. US stocks ended higher on Monday as fears of a global trade war ebbed with market participants betting that US President Donald Trump would back down on his threat to impose hefty tariffs on steel and aluminium imports.
Back home, India share markets opened the day on a strong note tracking global markets. The BSE Sensex is trading higher by 205 points while the NSE Nifty is trading higher by 64 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.9% & 0.6% respectively.
All sectoral indices have opened the day in green with metal stocks and realty stocks witnessing maximum buying interest. The rupee is trading at 65.05 to the US$.
In the news from the economy. Activity in India's service industries contracted in February for the first time since November as rising price pressures led to a decline in new business orders.
Services activity suffered for most of last year following a ban of high value currency notes in November 2016. The 1 July implementation of a national sales tax was another setback, weakening demand.
The Nikkei/IHS Markit Services Purchasing Managers' Index (PMI) fell to a six-month low of 47.8 in February, compared with January's 51.7. The 50-mark separates growth from contraction.
A sub-index tracking new business sank to a six-month low of 48.0 last month from 51.7 in January as demand continued to be affected by higher prices.
In February, manufacturers also faced accelerating inflation, pushing overall input prices to rise at their quickest pace in three and a half years.
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The contraction in services activity offset an expansion in manufacturing and caused a composite PMI, which includes both, to plunge to 49.7, its lowest since August, from 52.5 in January.
Notably, India's services sector remains the key driver of economic growth, contributing about 53% of gross value-added (GVA) growth in the last year.
The alarming part is, despite contributing a major chunk of economic growth, the sector's contribution to total employment is miniscule. The gap between services sector employment and total employment is wide.
In most economies, both growing and developed, the sector's GVA rate is similar to the sector's contribution to total employment.
For example, in Mexico, services are 60.4% of the overall economy and provide 61.2% of the jobs. In India, the sector is 53.2% of the overall economy but only contributes 28.6% to total employment.
The services sector in India, however, remains dynamic and growth is very high. But that growth is not commensurate with employment growth, which could very well be a cause for concern going forward as the sector takes an even more prominent role in the economy without providing significant employment growth.
Moving on to the news from banking sector. As per an article in a leading financial daily, the Reserve Bank of India imposed a penalty of Rs 30 million on Axis Bank for non-compliance of Income Recognition and Asset Classification (IRAC) norms.
Besides, the central bank also imposed a penalty of Rs 20 million on Indian Overseas Bank for non-compliance with Know Your Customer (KYC) norms. These penalties were imposed on 27 February.
RBI said it had carried out a statutory inspection of private sector player Axis Bank with reference to its financial position as on 31 March 2016. The inspection, inter alia, revealed the violations of various regulations issued by RBI in the assessment of non-performing assets (NPA).
Regarding the state-owned Indian Overseas Bank, the regulator said in a separate release that a "fraud was detected" in one of the branches of the bank.
The examination of the documents, including the bank's internal inspection report, revealed, inter alia, non-compliance with the directions issued by RBI on Know Your Customer (KYC) norms.
Further, RBI stated the action on the two banks is based on deficiencies in regulatory compliance and "is not intended' to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.
Axis Bank share price opened up by 1% while Indian Overseas Bank share price opened flat.
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