January industrial output growth seen at 2.9%

India's industrial output probably rose to 2.9% in January from a year earlier, on higher exports and improved manufacturing sector growth, a median forecast in a Reuters poll showed.

Industrial output grew at a slower-than-expected 1.6% in December.

Manufacturing contributes around 80% of industrial output.

The forecasts of 26 analysts polled ranged from 1.5% to 6.8%, markedly below the double-digit growth seen in the manufacturing sector a year ago.

Factors to watch

The HSBC Markit Purchasing Managers' Index , an indicator of manufacturing expansion, rose to a three-month high of 57.9 in February from 56.8 in January.

That was the 23rd consecutive month the key index of manufacturing in Asia's third-largest economy has been above the 50 mark, that divides growth from contraction.

The manufacturing sector grew 5.6% in October-December from a year earlier, government data released on February 28 showed.

India's exports in January rose an annual 32.4% to USD 20.6 billion, government data released last week showed.

In its annual budget for next fiscal year, presented in parliament on February 28, the government kept service tax and factory gate duty unchanged and proposed to further liberalise foreign direct investment policy.

Market impact

* Bond and overnight indexed swaps (OIS) markets expect January's industrial output growth to be in the 2% to 3% range.

* If the output growth shoots up to around 5% to 6% or more, the most-traded 8.08% 2022 bond yield could rise to around 8.08% to 8.10%, around 2-4 basis points (bps) rise from current levels, traders said. Swap rates are also expected to rise by around 2-3 bps across tenors.

* Traders say a weaker-than-expected data will likely ease both bond yields and swap rates by 3-4 bps.

* Dealers said they would also watch February inflation data due on Monday to take an overall view on central bank monetary policy stance. The central bank reviews its policy on March 17 where it is widely expected to raise key rates by 25 bps.