IIP to be double-digits for several months: HSBC

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Industrial production is likely to register double-digit growth year-on-year for several more months given the base effect and given strong PMI numbers, HSBC said in a note on Friday.
Industrial output grew 16.7% in January, below the upwardly revised 17.6% record growth in December and in line with a Reuters poll forecast for a 16.65% rise.
Business activity among Indian service companies grew at its fastest pace in 17 months in February, climbing for the third straight month as both output and new orders increased, a survey showed.
HSBC said it views the Indian economy to be further advanced in the economic cycle, which could potentially lead to price pressures.
The wholesale price index (WPI) or the consumer price index (CPI) may not be capturing this properly, the HSBC note said.
"To our minds, the policy authorities have fallen significantly behind the curve and need to act much more aggressively than they have so far to clamp down on underlying inflation.," HSBC's senior Asian economist Robert Prior-Wandesforde said.
However, the anticipated decline in measured (CPI and WPI) inflation and the pressure to be accommodative of the government's borrowing plans will probably continue to limit the extent and speed of RBI rate rises to some extent, HSBC said.
HSBC expects policy rates to be hiked by 200 basis points in a gradual manner over the next 12-15 months.
"Capital goods production rose an extraordinary 56% y-o-y, which is the highest since the monthly series began nearly 3 decades ago, and 25%age points above where it peaked at the height of the previous cyclical boom in 2007," Prior-Wandesforde said.
The note also said analysis shows growth in the capital goods sector has consistently proven to be a strong coincident indicator of fixed capital formation in the country.
"In our view, the capex cycle is showing a vigorous, V-shaped recovery, which could see real investment growth reach at least 20% in year-on-year terms later in calendar 2010."
"It is also worth noting that, in the past, capex growth of 20% has been associated with credit growth of 30% - again way higher than most are anticipating," he said.