Apr 12, 2013, 02.49 PM | Source: CNBC-TV18
The uptick seen in February industrial output (IIP) data indicates that the Indian economy is stabilising, believes Samiran Chakrabarty, head of research, Standard Chartered Bank.
Samiran Chakraborty (more)
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"The numbers say that the capital goods component, which is a very volatile component is one of the bigger factors in driving this number into the positive territory," he said in an interview to CNBC-TV18.
The IIP data for February grew 0.6 % beating estimates of contraction.
Meanwhile, Jyotinder Kaur, HDFC Bank is of the view that IIP number has very limited bearing on Reserve Bank of India's moves to consolidate the fiscal deficit.
"The situation on ground is pretty much the same and the case for further policy easing still remains. RBI will go ahead with a repo cut in its May policy," he added.
IIP number, a measure of the output of the industrial sector including the manufacturing, mining and electrical sectors, saw a bounce in February owing to the growth seen in consumer goods sector.
Below is the edited transcript of Chakrabarty and Kaur’s interview to CNBC-TV18.
Q: What have you made of the numbers and the constituents as well? Now, is there a little bit of confidence that things are on the mend?
Chakrabarty: The numbers have a slightly positive print and have been more or less in this range for two-three months. But this time, it was higher than market expectations primarily because we were shocked by the negative infrastructure index and it seems that the rest of the index has done substantially better to negate that impact completely and register a 2 percent increase. The numbers say that the capital goods component, which we know is a very volatile component is one of the bigger factors in driving this number into the positive territory.
Q: Should we dismiss capital goods as a one of and believe that the positive trend that we are seeing in basic and intermediate goods is not being built on. What would you make of it?
Chakrabarty: Typically, we have seen that for quarter ending March months, the capital goods number sometimes jump but since this was not a quarter ending month, it is all the more interesting to see why this is moot. We did a survey of a few corporates a couple of weeks back. Our survey did not show up any trend of capex activity picking up among those corporates.
We surveyed mostly large corporates, so it could be that it is the smaller corporates where there is some capex activity happening. Otherwise, it remains a number, which I would myself want some confirmation for another couple of months before saying that there is a capex recovery on the way. One thing is quite clear that we are not falling any further. So, atleast a stabilisation at a low level is something which is now more or less confirmed.
Q: Your comments on this 0.6 percent positive compared to market expectations of minus (-) 1.6-1.7 percent as well the constituents, capital goods coming in at 9.5 percent, the first positive tick in over a year.
Kaur: The headline print is higher than expectations and that does come as a support incrementally. However I would like to reemphasis the point that the difference notionally between a minus 1.7 and a 0.6 is not that much. We are stuck in this trap of weak growth and we don't seem to be making too much headway beyond that.
In terms of the constituents, clearly capital goods is a surprise to the upside and I would be circumspect before looking at it as a start of a trend. Our own capacity utilisation indicators suggest that the capacity utilisation levels actually fell in Q4. And what we could be having is the typical bunching up of data that is typical of capital goods series.
Q: What would be your guess of Q4 number for the average IIP number now?
Chakrabarty: About four-five months back, I would have given around 2-3 percent average IIP for this quarter. We would be somewhere there because from the moment the economic reform started, there is a little bit of optimism that it generated. It would have meant that some activity would have started to happen. It is not at a very large scale as yet but it is just about that positive territory we are there in. I will go with about 2-3 percent average IIP growth for the quarter. The interesting trend is that export growth has turned positive and since we know that roughly half of manufacturing is exported, that positive number is probably a lead indicator of why IIP is behaving quite differently from the infrastructure index.
Q: How do these two figures alter the way the RBI will approach the May policy?
Kaur: At the margin the consumer price index (CPI) number does give some comfort to the RBI. I don't think the Index of Industrial Production (IIP) number has too much of a bearing on the RBIs actions. On the whole the story on the ground is pretty much the same and if anything the case for further policy easing still remains. And I would expect the RBI to follow-through with a repo cut in May. I think the trends are broadly still in place, perhaps two more. I don’t think that the underlying trends have changed too much given today’s release.
Q: What would your expectation be for a quarterly average for Q4 but more importantly for the industrial growth in FY14?
Kaur: The quarterly number for the IIP will probably be in the 2-3 percent range and that is largely because of the number that we saw in January. However, I disagree on the extent of recovery that will possibly ensue. We remain somewhat circumspect about the extent of capex that we could see and we will pencil in a number of 5.6 percent GDP growth for FY14. Beyond that, it would basically be premised on very strong expectation that project execution has picked up quite sharply from current levels and signs of which so far are not very apparent.