IIP improvement shows change in eco sentiment, says Thermax

MS Unnikrishnan, managing director, Thermax says the positive Index of Industrial Production (IIP) numbers are indicative of improving economic sentiment in India. Beating estimates, that expected the Index of Industrial Production (IIP) to come at 1.2 percent, the IIP for January was recorded at 2.4 percent.

"Since consumption of 5 plus percent is sufficient for us to be having an economic growth rate of 4.5-5 percent going forward or so, our fear of GDP tanking further is controlled right now," adds Unnikrishnan.
Adding to the IIP optimism, Unnikrishnan is bullish on consumption. "I was expecting that the non durable section of the consumer good would tank again further in comparison to previous month. On the contrary, it has stabilised around 5.3 percent. It is an indication that consumption is still continuing in the country," Unnikrishnan said in an interview to CNBC-TV18. Below is the edited transcript of Unnikrishnan's interview to CNBC-TV18. Q: The one number that you would be looking for in terms of capex has come in quite badly? Capital goods saw another contraction of 1.8 percent – is capex really contracting?
A: Yes it is contracting. Infact, the numbers are the effect of what has happened one year back in terms of finalisation of orders. What one needs to worry about is how much fresh orders will be coming into the book of capital goods companies in the country. Since I am privy to majority of this, there is no good news in that area. Having come across situations where medium to large ticket size contracts are finalised in recent past,  either in commodity sector or in power, steel, cement  sector, one still has some of them happening in small ticket size expansions of food, food processing or maybe some of those.
I would look at the numbers slightly differently. There is one good news- in the month of January we saw the electricity generation in the country increase by 6.4 percent. This means the capacity which is build-in in the earlier past, is delivering electricity demand for the country. And that is positive news.
I was expecting that the non durable section of the consumer good would tank again further in comparison to previous month. On the contrary, it has stabilised around 5.3 percent. It is an indication that consumption is still continuing in the country. If that were to take a plunge further, we would have been talking about a dooms day going forward.
Since consumption of 5 plus percent is sufficient for us to be having an economic growth rate of 4.5-5 percent going forward or so, our fear of GDP tanking further is controlled right now. I am not trying to be very optimistic but this is an indication through numbers that maybe we are at a stable level and there is a possibility for us to reverse a trend of negativity in the coming quarters.
I don’t think anybody in the country or anywhere in the world is excepting that the country where GDP growth has come down from 8 percent to 5.3 percent will automatically see an improvement in capital goods. We will have to wait and watch and we possibly need to be given time where people believe that consumption is increasing and we need to be creating capacity. Then, they will call us to finalise orders for capacity expansion. It is a long story for us.

Q: But has that decline or cut in capex from a year earlier atleast reduced?
A: I haven’t come across in the last two quarters any substantial large projects getting stuck. Whatever was going on is going on. The pace of implementation of projects has come down. One can’t blame that to the availability of money because credit availability is not so bad in the country for atleast core projects. However, the desire of the owner to complete the project on time, to take care of the growing market is a current issue. Everybody is taking luxurious time for execution of a project. There are no cancellations or hold up of a project.
Then comes a new declaration. What we need to worry at this point is if we are having new projects getting declared by either the government or by the industry. One needs to worry about power sector, steel sector, cement sector, oil and gas. These are the four core industries which I would look forward to as a reversal trend indicators. In that, I haven’t seen a single larger project barring the Cochin Refinery that is declared. When one listens to any sectoral improvement in these four areas, I would say the reversal has happened. So, let us wait for it. Q: You have seen previous downturns. Do you predict any coming in, in 14 months,18 months or two years?
A: I would give an 18 month period for it. Beyond that, this economy can’t afford to be slowing down this way because we are not Europe or America. We have a population growth happening at 1.55 percent which is 20 million Indians getting added to this population of the country. They all are going to be consuming and the urbanisation is never witness by the universe. Lifestyle changes happening equals how you can contain the consumption. So, it has to grow but having reversed from 8 to 5 percent I would give them an 18 month period.