IIP at 3.8% in Nov, CPI at 5% in Dec: Kotak Securities
IIP numbers indicate reversal of last month's contraction in industrial production. We sense, such volatile numbers could be due to data quality issues, like delayed reporting. We would indeed look at 3 month moving averages, which stands at 0.8% in Nov, 36 month average IIP growth is still below 1%.
CPI in December came at 5% from 4.4% in Nov, due to waning base effects. In fact m-o-m CPI inflation is down by 40 bps. Vegatable prices corrected by 8% m-o-m. Combined CPI index has remained stagnant at 145 levels during last five months. Suggesting significant erosion of price pressures in the system. Core inflation too moderated a bit to 5.3% from near 8% few months back. There has been continued moderation in CPI and industrial growth is almost NIL in almost 3 years. Infact in past 3 years, industrial production has increased by just 1.3% (Nov'14 vs Nov'11).
Contiued slump in industrial production and erosion of inflationary pressures should tip the scales in favour of an early and decisive rate cut. We expect the RBI to cut policy rates in the next policy scheduled on 3rd Feb.
"Industrial production reported growth of 3.8%, on m-o-m basis, IIP Index reported 4.5% growth over last month. The 3-month moving average in IIP growth rate stand at 0.8%. We believe that the economy has yet not recovered from the lows and although we are expecting recovery in economic activities from current levels. Recent fall in global commodity prices (crude oil has fallen to below 50$/bbl from recent highs of 115$/bbl), provide an opportunity to contain inflationary expectations. We believe that if economy does not recover, fiscal deficit target of 4.1% set by the government would most certainly be missed. However, we wouldn't put too much emphasis on individual data release, as the series is volatile and, current release suggest a natural rebound from the contraction in october IIP", says Kotak Securities research report.
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