IIP at -0.1%, realigns to muted growth, rate cut visible
Emkay Global Financial Services has come out with its report on economy update. According to the research firm, rising cost structure and weakening demand will keep the inflation-growth friction alive.
January 14, 2013 / 14:58 IST
Emkay Global Financial Services has come out with its report on economy update. According to the research firm, rising cost structure and weakening demand will keep the inflation-growth friction alive. Amidst the proposed measures with respect to price hikes in petro products. The tumbling IIP numbers and WPI below 7.5% (estimate) may push RBI to stand by its guided commitment of rate easing in the fourth quarter.
IIP growth contraction in Nov’12 at 0.1%YoY marks realignment to the muted growth trend seen during most of this fiscal and follows an erratic 8.3% YoY bounce in Oct’12. The contraction came in line with our earlier estimated trajectory leading to an average IIP growth of 1-2% for FY13. The consensus estimate for Nov stood at 0.2%. With the Nov’12 print, 5 out of 8 months have shown YoY contraction. YTD growth for Apr-Nov now stands at 1% vs 3.8% last year. Nov’12 release is accompanied by the upward revision for Oct’12 to 8.3% from 8.2% and downward revision for Aug’12 to 2% from 2.7% (provisional). Nov’12 IIP witnessed a 1.4%MoM contraction on a seasonally adjusted basis and follows a sharp 5%MoM rise in Oct’12. This implies that Nov IIP was weak tracking both an unfavorable base effect and sequential weakening.Outlook: Downside risks remainForward looking indicators for Dec’12 point at a muted growth momentum going ahead. Truck sales (5-49 ton range) contracted 39.3% in Dec’12. Overall commercial vehicle sales contracted 13% in Dec’12. Huge truck inventory, lower realizations/resale rates, dropping truck rentals all hint at a lower truck production demand.Passenger car sales contracted by 1.1% in Dec’12 hinting at a demand slowdown. Two wheeler sales witnessed a marginal improvement at 4.5%. Vehicle sales act as a strong lead indicator for future production. Industry sense on Cement production in Dec’12 hints at an improvement compared to Nov’12.Base effect remains favorable for Dec’12 IIP data (IIP fell to 2.7%YoY in Dec’11 from 6%YoY in Nov’11). We expect Dec’12 IIP to grow at lower single digit rate. Overall, there is high likelihood of FY13E IIP growth to remain very modest (1-2%)Much awaited rate cuts at sight: Overall, we believe rising cost structure and weakening demand will keep the inflation-growth friction alive. Amidst the proposed measures with respect to price hikes in petro products, we expect upside risks to inflation will persist. However, the tumbling IIP numbers and WPI below 7.5% (estimate) may push RBI to stand by its guided commitment of rate easing in the fourth quarter. With RBI placing greater focus on spurring growth, the January policy could witness the commencement of the much awaited rate easing.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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