IIP, CPI inflation continue to disappoint: Angel Broking
Angel Broking expects CPI inflation to moderate. The research firm is positive on the trajectory for food inflation owing to the decent rabi production, plus expects a pick-up in sowing of kharif crops since a reasonable hike in MSP prices has been announced by the government for kharif crops.
July 15, 2013 / 13:20 IST
Angel Broking has come out with its report on IIP & CPI inflation data. "we expect CPI inflation to moderate. We are positive on the trajectory for food inflation owing to the decent rabi production, plus we expect a pick-up in sowing of kharif crops since a reasonable hike in MSP prices has been announced by the government for kharif crops," says the research firm.
As per Quick Estimates on the Index of Industrial Production (IIP), industrial growth in May 2013 continued its poor show as it declined by 1.6 percent (in contrast with market expectations of a growth of 1.5 percent).The production data continues to reflect weakness on the demand-side, ie in investment as well as consumption demand.The index for April 2013 has been revised downwards owing to revision in mining and manufacturing data. Consequently, growth has decelerated by 40bp to 1.9 percent from 2.3 percent reported earlier.The Consumer Price Index (CPI) inflation for June 2013 also disappointed by unexpectedly touching almost double-digit growth at 9.9 percent as against 9.3 percent in May 2013.Going ahead though we expect CPI inflation to moderate. We are positive on the trajectory for food inflation owing to the decent rabi production, plus we expect a pick-up in sowing of kharif crops since a reasonable hike in MSP prices has been announced by the government for kharif crops.Performance on Sector-wise classification
In terms of sector-wise classification, electricity production paced higher but decline in production in mining and manufacturing sectors weighed on overall output. The Mining sector continued to contract for the eighth consecutive month and reported a 5.7 percent decline in May 2013 as against a 0.7 percent contraction in the corresponding period of the previous year, owing to decline in production of coal, crude oil and natural gas.The Manufacturing sector reported a 2.0 percent decline after having posted tepid growth since January 2013. Amongst its components ‘Furniture’ (18.7 percent growth) and ‘Wearing apparel; dressing and dyeing of fur’ (14.3 percent growth) reported the highest growth; while the component ‘Office, accounting & computing machinery’ (30.0 percent de-growth) continued weighing on production for the seventh straight month. In the near-term, a meaningful recovery in the manufacturing sector still looks unlikely as consumption and investment side of growth remains sluggish. Exports have reported about 4.6 percent degrowth in June 2013, so manufacturing activity is unlikely to get support in the near term. But we believe that the sharp INR depreciation and a recovery in global growth would eventually improve the outlook for exports in the medium term.The Electricity sector reported a healthy 6.2 percent growth as compared to a growth of 4.2 percent in April 2013 and 5.9 percent in May 2012. Excluding the performance of this sector, the IIP contraction stands at a steeper 2.2 percent.CPI inflation inches upwards to 9.9 percent in June 2013
In contrast with expectations of a further moderation in CPI inflation, the combined (rural + urban) inflation for June 2013 accelerated to almost double-digits at 9.9 percent from 9.3 percent in May 2013. Inflation in food articles in the CPI (accounting for almost 50 percent weightage in the index) came in higher at 11.7 percent as compared to 10.7 percent in the previous month and this can be attributed mainly to seasonal factors. Fuel inflation also inched higher to 8.7 percent during June 2013 as against 8.5 percent in the previous month. Worryingly though, core (non-food, non-fuel) CPI inflation has also accelerated to 8.2 percent in June 2013 as against a moderation to 7.7 percent in the previous month.Going ahead, we are positive on the trajectory for food inflation owing to the decent rabi production, pick-up in sowing of kharif crops and reasonable MSP price hikes announced by the government for the kharif crops. The sowing of kharif crops has reached about 517.7 lakh hectares ie a 51.6 percent pick-up as compared to the coverage during the corresponding period of the previous year.
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