about 11 months ago
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Well, the macro news was not expected to be very good anyway and that’s why the IIP for August came and went in a blip.

As expected, it contracted, this time by 8% v/s 10.77% in July; so things are bad but it is slowly getting better. ‘Slowly’ is the focal word here.

Last month, at least the consumer non-durables had shown a bounce back but this month, it was a fall right across the board.

Here are the details of the fall: (Aug v/s July v/s June))

  • Manufacturing (-) 8.6 v/s (-)11.6% v/s (-)16%
  • Mining (-) 9.8% v/s (-)12.8% v/s (-)19.6%
  • Electricity (-)1.8% v/s (-)2.5% v/s (-)10%
  • Intermediate goods (-) 6.8% v/s (-)11.6% v/s (-)23%
  • Primary Goods (-) 11.1% v/s (-)10.7% v/s (-)14.5%
  • Capital Goods (-) 15.1% v/s (-)22.8% v/s (-)37.4%
  • Consumer Durables (-) 10.3% v/s (-)23.6% v/s (-)34.25%
  • Consumer Nondurables (-) 3.3% v/s 1.8% v/s (-)14.3%

So if you see over a 3-month period, it is pretty clear that the pace of contraction is most certainly slowing down significantly – the slowdown is slowing down. Primary goods is the only exception – it has a 34% weightage in the overall IIP basket and it has 15 items – hard coke, Aviation Turbine Fuel (ATF), diesel, furnace oil, bitumen, LPG, kerosene, petrol/motor spirit pet coke, urea, NPK fertilizers, Diammonium Phosphate (DAP) and Superphosphate. And the consumption of these, except for the fertilisers has been very low and thus the contraction is understandable.

The overall perception is that the stimulus announced yesterday could kick-up demand for consumer durables and automobiles. Also with festive season arriving, rural India buys most in Q3. Thus if the covid infections do not surge further, most analysts expect a sharp bounce back in capital goods and consumer durables from this month, October onwards.

But more than IIP, what is indeed worrisome is the CPI spiking up. For September, it came in at 7.34% v/s 6.69% in August. RBI is bound to sit up and take notice because it is way above its target of 4% (+/- 2%). Though the MOC did say last week that inflation will rise, mainly on the back of increased tax on petroleum products and disruption in food supply chain. Its target is now 5.4 to 4.5% by H2FY21.

Internals of CPI: (MoM)

  • Food & beverages – 9.73% v/s 8.29%
  • Vegetables – 20.73% v/s 11.4%
  • Fruits – 3.21% v/s 1%
  • Transport & communication – 11.5% v/s 11.05%
  • Clothing and footwear – 3.04% v/s 2.8%
  • Housing – 2.83% v/s 3.1%
  • Fuel and light – 2.87% v/s 3.1%
  • Health – 4.9% v/s 4.71%
  • Personal care – 12.31% v/s 14.45%

The market, in all likelihood will ignore these macro numbers and look at Wipro’s earnings, scheduled for today. Over the coming days, with nothing really more expected to come from the Govt; RBI has done its bit, the market will concentrate on earnings and we will see stock-specific action. IT stocks will be in focus, what with earnings and US markets also rising on the back of IT sector – yesterday Nasdaq 100 posted its biggest advance since April.

Having said all this best to take one day at a time, what with corona continuing to dominate our lives.

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