Sep IIP up at 4.8%: Are we still staring at slowdown?

The September IIP, or index industrial production, has come in at 4.8% up from 1.3% during August and 6.98% year-on-year.

The manufacturing output is up at 4.8% compared to 7.45% year-on-year. The capital goods output is up at 18.8% against 20.9%; mining output is up at 5.7% against 4.9%.

The consumer durable output is up 13.1% compared to a fall of 7.3% year-on-year. The August industrial output is revised to 1.4% from 1.3%, on provisional basis.

P Chidambaram, Finanace Minister, said September IIP numbers are encouraging and growth in capital goods sector has been impressive and satisfactory. However, data collection must be improved and made more relevant, he added.

"[It is] certainly better than what I was expecting, I was expecting a IIP growth rate of around 3.5–4%,” said Gaurav Kapoor, Senior Economist, ABN Amro Bank. “The core sector numbers were better so that pointed towards a better IIP number this time. Obviously, there was fairly high statistical base effect at play, so the August number was low to a large extent on account of that,” he said.

Kapoor added that he didn’t see negative growth for IIP for the month of October. The October IIP may be in the range of 3.5–4%, Kapoor said, as consumer spending is expected to remain strong. We may see 50-100 basis points repo rate cut by end of the year, he added.

Anubhuti Sahay, Associate Economist – Global Research, Standard Chartered, however, cautioned that there could likely be negative IIP numbers in November given the shutdowns that were taking place. Sahay expects IIP numbers in the range of 2.5–3% for H2FY09.

On the industrial perspective, K Ravi Kumar, CMD, BHEL, said FY09 the average capital goods growth was likely to be good, but cautioned that FY10 capital good numbers could be impacted if the slowdown continues.

So how do bankers view the September set of numbers?

Samiran Chakrabarty of ICICI Bank said the September IIP number is more or less in line with expectations but uncertainty is still not over and added that we need large policy action to strengthen the economy

Indranil Pan of Kotak Mahindra Bank said the Sep IIP number is higher than his expectations. “However, overall macro risk to lower production is consistent. Many sectors like textiles, leather are likely to see massive slowdown in production and there are plenty of risks going forward. We see an average of 4% IIP this year,” Pan said.

Shubhada Rao, Chief Economist, Yes Bank, said the September number is in line with her expectations in terms of bounceback from August. “Some correction is expected in October. However the broad moderation in IIP will continue for the rest of the year and would expect immediate support from monetary and fiscal policy to arrest the pace of moderation,” she said.

Source: Moneycontrol