Oct IIP data to grow 4.5% on core sector boost: Poll

October IIP data is due to be announced today. A CNBC-TV18 poll forecasts it at 4.5 percent to some extent aided by a base effect. Banking editor Latha Venkatesh explains that the CNBC-TV18 poll has thrown up a much better level of 4.5 percent as industrial growth for October which looks much better compared to the minus-0.4 percent that was notched up in September.

There are some polls that are even expecting 5 percent. But this should not indicate a huge swing. In the first place, this excellent 4.5-percent growth is because October 2011 was a terrible month due to a contraction caused primarily because Diwali fell in October when the number of working days are less and most companies produced a lot for restocking in September for sales in the Diwali month.
So last year, for all these reasons October was a very weak month and on a base of minus-5, the data for October, 2012 will definitely look much better because, it was not Diwali month, it was a month before Diwali when a lot of output actually happens.
So seasonally adjusted, it should not look very good, but there is some advance indication of the core sector having done well. The core sector grew by 6.5 percent largely supported by refinery products which posted had a 20-percent growth in the month of October, decent improvement in electricity generation, in steel and cement production.
So since the core sector did well, there is enough confidence to forecast the overall Index of Industrial Production (IIP). Even if the base effect is deducted and the industry does manage to register a 4.5- or 5-percent growth, it will mean a 1- or 1.5-percent growth in October over September, which in itself is a very good record. So, if the IIP does manage to post a 4.5- to 5-percent growth later today, it would be a positive and probably indicate that industrial output has troughed out.
However, it will not make much of an impression on the Reserve Bank of India (RBI) because the RBI doesn’t trust the IIP data. But for what it is worth, if it is as cheerful as a growth of 4.5- to 5-percent ,it will be add that much needed spring in the step for the market.