The index of industrial production (IIP) in January stood at positive 0.1 percent, highest since September 2013. A CNBC-TV poll had expected a contraction of around 1.1 percent.
Manufacturing sector, which comprises 80 percent of the total IIP, declined 0.7 percent versus a contraction of 1.6 percent on a monthly basis. Consumer durables data, which gives a better picture of the demand scenario in the economy, saw de-growth of 8.3 percent against a decline of 16.2 percent (MoM). Growth in the capital goods segment also fell 4.2 percent virus a fall of 3 percent seen last month. Consumer goods growth declined 0.6 percent versus de-growth of 5.3 percent (MoM).
Eleven out of twenty two industry groups in the manufacturing sector witnessed positive growth in January as compared to the corresponding month of the previous year. The mining sector grew 0.7 percent versus 0.4 percent (MoM). The electricity sector saw a rise of 6.5 percent compared to 7.5 percent in the previous month. Consumer non-durables grew 4.4 percent versus 1.6 percent (MoM). Intermediate goods segment grew for two months in row to 3.4 percent.
The December IIP has been revised to -0.2 percent from -0.6 percent (provisional).
Meanwhile, the consumer price index (CPI) for February, which is a precursor to the RBI policy on April 1, slowed to 8.10 percent from 8.79 percent in January. CPI in February hit is lowest level since January 2012. The February CPI data was bang in line with CNBC-TV18 poll estimate. CPI had touched a two-year low last month.
February CPI food inflation eased to 8.57 percent versus 9.9 percent on a month-on-month basis (MoM). February CPI urban inflation fell to 7.55 percent versus 8.09 percent (MoM). Rural inflation stood at 8.51 percent against 9.43 percent on a monthly basis. The combined fuel and light inflation stood at 6.13 percent and clothing, footwear bedding inflation came in at 9.22 percent.
The core CPI, which refers to services like medical care, education, recreation, transport and household requisites, grew in February. The core CPI doesn't change as much as food and fuel prices and the Reserve Bank of India (RBI) tends to look at it this data to check whether genuinely the price level in the system has come down.
How experts read it
Samiran Chakraborty, head of regional research (South Asia) Standard Chartered Bank feels that the trend of a flat industrial production continues and if the IIP data remains at such a low level for so long then meeting the growth target would be challenging.
Intermediate goods and consumer durables are the two ares that have seen significant improvement. Consumer durables have moved from a deeply negative growth to a flattish growth. Though it would be too early to say that this trend would continue, but at least the decline has been arrested, he said.
On the other hand, the CPI data for February is a positive, it seems that food inflation shock is slowly passing off from the system and is heading to a more manageable level, he said. But, 8 percent CPI is also quite high, he added.
Ashish Parthasarthy Treasurer, HDFC Bank sees the bonds and stock market reacting positively to the easing CPI data.
Soumya Kanti Ghosh Chief Economic Advisor, SBI sees limited downside to CPI data going ahead unless the core CPI declines significantly. He cautioned that food prices may see a reversal due to the damage caused to crops by hail storms in various parts of the country.
Too early to expect a rate cut
Both the food and core inflation are trending downwards, but RBI is likely to be on a wait on watch mode, Parthasarthy said. The objective of RBI is to get inflation to 6 and 7 percent level and 8 percent is still very high. Just one number is not enough,” he added. HDFC Bank is not looking to cut deposit rates anytime soon. “Deposit rates around 9 and 9.5 percent are likely to stay till the time inflation and policy rates reduce significantly from here,” he said.
Ghosh also rules out the possibility of a rate cut by the central bank in April.
The gap between the policy rate which is 8 percent and the headline CPI will have to be substantial for RBI to start cutting interest rates. One shouldn’t expect a rate cut as long as inflation remains above policy rate, Chakraborty said.
Bond, Rupee: Time to cheer?
Bond yields would not react much to this data given that it is not too different from what the market was expecting, Chakraborty said. The rally in the bond market will be postponed and will be dependent on RBI’s inflation trajectory, he added.
If the core inflation comes below 8 percent there will be a marginally positive reaction in the bond market and rupee could also appreciate a bit tomorrow, Parthasarthy said.
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