Despite hopes that industrial slowdown may have bottomed, the September IIP number slipped to a negative 0.4%, disappointing the market that immediately slipped into the red.
Despite hopes that industrial slowdown may have bottomed out, the September index of industrial production (IIP) slipped to a negative 0.4%, disappointing the market that immediately slipped into the red. The street had been expecting a positive number of over 3% based on core sector growth . The reason for the contraction was sluggishness in manufacturing (down 1.5% ), Capital Goods (-12.2%), Consumer Goods (-0.3%) and consumer durables (-1.7%). In real terms, the September IIP decline wiped out all gains made in the previous two months. Meanwhile, August IIP too was revised downwards from 2.7% (prov) to 2.3%.
The consumer durables sector's drop to -1.7% was the steepest this fiscal. It was at 8.9% last year. One reason for this fall, as pointed out by Venugopal Dhoot of Videocon , is arrival of Diwali in the month of November. He reasoned that last year Diwali had fallen in October which had spiked sales in consumer durables sector in September.
The IIP, which measures the output at factories, mines and utilities, has fallen far behind China. The Asian rival had clocked a 9.2 percent industrial output annual growth rate in September and is expected to better it in October.
Speaking to CNBC-TV18, C Rangarajan, chief of PMEAC, said the September IIP number was a disappointing figure, particularly when the August industrial production rate showed a pick-up. He said the government had initially estimated FY13 GDP growth rate at over 6.5% and later scaled it down to 6%. "But now it can be in the region of 5.5%," the advisor to the prime minister said, sounding cautious. He hoped inflation will decline December onwards.
There is a possibility that this month's IIP number is an aberration and may look better in the coming months. But still there is little scope of a significant improvement in the months ahead. Looking at all parameters — auto numbers, export numbers, and core sector growth — it appears that the Reserve Bank has very little room to cut rates in its subsequent policy meets.
Below is the degrowth/growth recorded in key sectors
Set email alert for
ADS BY GOOGLE
video of the day
Sensex can slip to 22K, FY16 GDP sliced to 6.8%: Ambit Cap