Last Nov, growth was fantastic where growth was over 8% and with that kind of a base effect, naturally, expectations were low. But it was surely a shocker to see an IIP of 0.5% v/s 8.1% (MoM) for Nov! The estimates were all around 3.5 to 3.4%; in that context this huge fall is not going to go down too well the markets. This is a 19-month low.

Half a percent growth means, really, no growth at all. Manufacturing was the worst performer at -0.4% and this is what pulled down the IIP so much, given that it has an almost 80% weightage in the IIP. Capital goods was at -3.4%, intermediate goods at -4.5%, consumer goods -0.9% and consumer non-durables -0.6%. Clearly, the overall picture was pretty somber.

The seasonality factor, the base effect, the poor monthly performance of auto sector – all together had indicated that things were uncomfortable. This number of IIP does indicate that demand has slowed down and as of now, Dec IIP also does not look very good.

In terms of industries, ten out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of November 2018 as compared to the corresponding month of the previous year . The industry group ‘Manufacture of wearing apparel’ has shown the highest positive growth of 22.1 percent followed by 7.6 percent in ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ and 7.4 percent in ‘Manufacture of other transport equipment’. On the other hand, the industry group ‘Manufacture of fabricated metal products, except machinery and equipment’ has shown the highest negative growth of (-) 13.4 percent followed by (-) 9.6 percent in ‘Manufacture of electrical equipment’ and (-) 7.3 in ‘Other manufacturing’.

Currently, with the Govt spending the way it is, keeping an eye only on the vote bank, giving two hoots to the fiscal deficit, as of now, the overall picture does not look very pretty. CPI and WPI on Monday are expected to be low and many are talking about RBI cutting rates! Maybe that is what the Govt will use to infuse demand and get back an air of optimism.

The high positive contributors to IIP were electricity, diesel, sunflower oil, mining and all cement types. And the high negative contributors were copper bars, rods and wire rods, pig iron, steroids and hormonal preparations (including anti-fungal preparations), Steel frameworks or skeletons for construction of towers including pit props and bodies of trucks, lorries and trailers.

With crude once again on a rally, petrol and diesel prices rising, the rupee earning the dubious distinction of going from Asia’s best performing currency to the worst within two weeks, the Govt borrowing big time to spend on the sops and farm loan waivers, the economic picture at the moment looks very skewed. The Budget to be announced on 1^st Feb will be all about getting votes and very little about economics.

Thus the onus now lay on the RBI – it will come under pressure to bring down interest rates; that is the only trigger on the bigger picture for the market. Otherwise, till then, it will be individual companies, dominated by earnings for Q3.