SEPT IIP - DISAPPOINTING AND DREARY
By Ruma Dubey
| PARTICULARS | Sep | Sep’13 | Aug’13 | July’13 | June’13 | May’13 | April’13 | YoY | |||||||
| IIP | 2.0% | 0.6% | 2.6% | -2.2% | -1.6% | 2% | -0.7% | ||||||||
| Cons Durable | -10.8% | -7.6% | -9.3% | -10.5% | -10.4% | -8.3% | -1.5% | ||||||||
| Manufacturing | 0.6% | -0.1% | 3% | -3.2% | -2% | 2.8% | -1.6% | ||||||||
| Capital Goods | -6.8% | -2.0% | 15.6% | -6.6% | -2.7% | 1% | -13.3% | ||||||||
| Basic Goods | 5.4% | 1.5% | 1.7% | -1.9% | -0.4% | 1.3% | 2.7% | ||||||||
| Mining | 3.3% | -0.2% | -2.3% | -4.1% | -5.7% | -3% | 2.2% | ||||||||
| Electricity | 12.9% | 7.2% | 5.2% | 0 | 6.2% | 0.7% | 3.9% | ||||||||
| Cons Non Durbl | 11.3% | 5.0% | 6.8% | 5% | 1.7% | 12.3% | 1.4% | ||||||||
| Interm Goods | 4.1% | 3.6% | 2.4% | 1.1 | 1.5% | 2.4% | 1.7% |
There was good news preceding the IIP which reinforced the belief that maybe, just maybe, we could see IIP for Oct come at a much better level. After all, it was the festive season too.
First good news was the exports – which for the fourth consecutive month came higher and for October, it was up 13.5% while imports fell 14.5%, leaving a trade deficit of $10.55 billion, which is almost half of $20.2 billion year ago.
Then there was also the news of the core sector growth, which for Sept came in at 8%, the fastest growth in past eleven months and up from 3.7% in the previous month. Now this core sector contributes 38% to the IIP, so naturally, the impact on IIP was expected to be positive and everyone had started talking about green shoots.
But it proved to be a short lived happiness. Green shoots they do not look like, more like some small weeds, which will only wilt under the sun. First the CPI inflation for Oct, which was at 10.09% v/s 9.84% (MoM) while CPI Food inflation came in pretty ugly at 12.56% 11.44% (MoM). Very uncomfortable numbers.
Then came the IIP for Sept which came in at 2%, better than 0.6% in August but surely much lower than expected growth of around 3%. One could not help wonder where all the growth of the core sector got written off in the IIP? The growth in the infra sector growth was reflected partly in the IIP numbers in the form of growth in electricity, mining and basic goods but the rest remained laggards, pulling down the overall IIP.But the same thing happened last year too; core sector growth for Sept’12 came in at a robust 8.3%, highest since Jan 2009-10 but IIP for Sept contracted 0.7%.
Manufacturing which has a 80% weightage in the IIP number did better than July but the reality is that it remains less than 1%. Most analysts do not take into consideration capital goods at all as it simply cannot be trusted given the lumpy basket of goods it comprises of. Electricity has a 10% weightage and that has shown a growth of over 10%. Consumer goods story is led by rural consumption and less by urban growth. With a good monsoon, we could only see an improvement in this trend.
But immediately in the short run, things do not look good with lower IIP and much higher inflation. There is no doubt that going ahead, inflation will remain the focus for RBI. Already inflation is at an elevated level, and good monsoon would mean higher demand, good growth but higher inflation. RBI has stated that while food price pressures may ease with the arrival of the kharif harvest and the usual seasonal moderation, overall WPI inflation is expected to remain higher than current levels through most of the remaining part of the year warranting an appropriate policy response. RBI stated that it expects retail inflation is likely to remain around or even above 9% in the months ahead, absent policy action. RBI is expected to continue to maintain a hawkish stance and another rate hike on 18th Dec and later seems inevitable. Yes, before that we will have another set of IIP and inflation data to give us more headwinds but if this was the picture when demand was actually good, one can only wonder how things will pan in the later months.
FIIs are currently infatuated with India so should we say they have parked till tapering is announced. So do not get fooled by the markets surge as it has got nothing to do with the ground realities.
The next big trigger for the market will undoubtedly come from RBI if it announces as promised, by mid November, guidelines for foreign banks to convert into Wholly Owned Subsiidaries (WOSs). We could see speculators pushing up price of small banks like Karnataka Bank, City Union Bank, Karur Vysya and the whole pack, on expectations that they might become prime picks for foreign banks to convert into WOSs. But remember, not every foreign bank is an acquirer and not every small bank is an acquiree - M&A might not be the only way foreign banks might want to become WOSs. Now that is what will keep the banks guessing and stocks going till then….
The challenge though remains – how does India Inc get back onto the growth track?