Modest recovery ahead as firms unwilling to hire more despite improved PMIs: HSBC


MUMBAI: Even as both service and manufacturing PMIs have posted better numbers than previous months, that firms are reluctant to increase hiring points to a modest ‘U’ shaped recovery with the Reserve Bank likely to hold on to rates in the near future, says a report by HSBC Research.

Both manufacturing and services PMIs are now in positive territory following a few months of demonetisation-led disruptions. Higher output, new orders and order-to inventory ratios point towards improvements ahead, said HSBC. Yet, companies are reluctant to increase hiring, and future activity expectations have fallen.

Manufacturing PMIs at 50.7 in February compared to 50.4 in January and services PMI at 50.8 in February compared to 49.9 in January are in the positive territory, led by stronger private sector output and new orders. Services activity rose after three months of contraction. Manufacturing had already started to rise last month, and picked up some more pace. However, both manufacturing and services have some way to go before reaching pre-demonetisation levels.

Moreover, a slight improvement in the manufacturing order-to-inventory ratio to 1.12 in February from 1.10 in January suggests that activity may improve in future months. Interestingly, manufacturers are seeing higher buoyancy in new orders than service providers, with much of it coming from external demand, said the report.

However, the improvements may remain modest at best. Companies remain reluctant to take on additional staff and confidence towards the 12-month outlook for output has dipped to its second lowest mark in over one year. This implies that improvements are likely to be modest. Besides, both input and output prices have risen to multi-month highs. The numbers suggest that recovery over FY’18 will be ‘U’ shaped, according to HSBC rather than ‘V’ shaped which markets are expecting.