A BUMPER IIP AND SOBERING CPI

By Ruma Dubey

October was the month of Diwali and the trickle effect of this was expected but an IIP of 8.4% v/s 2.2% (MoM) for November surely blew everyone off! A 25-month high! Looks like all the pent up demand after demonetization and GST broke the dam, leading to this super-duper growth number.

Manufacturing was the surprise here as steel, cement and even automobile sectors did pretty well and this is reflected in the IIP. But before we get start victory bugles, it is pertinent to know that this figure of 8.4% is most certainly not sustainable. This is more like a blip, a seasonal factor playing at its best.

In terms of industries, fifteen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of November 2017 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ has shown the highest positive growth of 39.5 percent followed by 29.1 percent in ‘Manufacture of computer, electronic and optical products’ and 22.6 percent in ‘Manufacture of other transport equipment’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 15.9 percent followed by (-) 13.1 percent in ‘Manufacture of wearing apparel’ and (-) 11.2 percent in ‘Manufacture of electrical equipment’.

Some important item groups showing high positive growth during the current month over the same month in previous year include ‘Bodies of trucks, lorries and trailers’ (202.0%), ‘Digestive enzymes and antacids (incl. PPI drugs)’ (110.7%), ‘Separators including decanter centrifuge’ (71.4%), ‘Axle’ (61.9%), ‘Stainless Steel utensils’ (55.5%), ‘Sugar’ (46.4%), ‘Steroids and hormonal preparations (including anti-fungal preparations)’ (40.9%), ‘HR coils and sheets of mild steel’ (37.2%), ‘HR plates of mild steel’ (22.8%) and ‘Two-wheelers (motorcycles/ scooters)’ (20.7%).

Some important item groups that have registered high negative growth include ‘Jewellery of gold (studded with stones or not)’ [(-) 68.7%], ‘Anti-malarial drug’ [(-) 66.4%], ‘Hand Tools incl. interchangeable tools, not mechanised’ [(-) 51.8%], ‘Plastic jars, bottles and containers’ [(-)43.9%], ‘Printing Machinery’ [(-) 40.4%], ‘Electric heaters’ [(-) 37.1%], ‘Purified Terephthalic Acid (PTA)’ [(-) 27.7%], ‘Bags/ pouches of HDPE/ LDPE (plastic)’ [(-) 24.8%], ‘Plastic components of packing/ closing/ bottling articles & of electrical fittings’ [(-) 23.0%], ‘Electrical apparatus for switching or protecting electrical circuits (e.g switchgear, circuit breakers/switches, control/ meter panel)’ [(-) 22.6%], ‘Readymade Garments, knitted’ [(-) 21.6%], ‘Generators / Alternators’ [(-) 21.6%] and ‘Tooth Paste’ [(-) 20.2%].

Today was also inflation data day. So a look at the consumer price index (CPI) or retail inflation. CPI for December came in at 5.2% v/s 4.9%. A quick look at some of the internals of CPI on (MoM):

• Food inflation 4.96% v/s 4.42%
• Fuel inflation 7.9% v/s 7.9%
• Vegetable inflation 29.13% v/s 22.48%
• Clothing and footwear 4.8% v/s 4.96%
• Cereals 2.57% v/s 3.27%
• Milk and milk products
• Pulses -23.47% v/s -23.53%
• Housing 8.25% v/s 7.36%

This means that in the coming months, we are going to see inflation in this 5% category and during April and May months, due to the lower bas effect, we could see a much higher CPI. Thus expecting any rate cut from RBI in any time soon is being naïve.

The market is sure to celebrate this bumper of a growth number but it would be just a temporary reaction. At this juncture, all eyes will be on the Union Budget, which is just 19 days away. Budget and Q3 numbers will more or less decide the moods.

For now, this IIP number and 38% jump in net profit of Infosys, albeit thanks to tax write back is good news. As we get into the weekend, let’s keep this good in mind and rejuvenate ourselves for the next week.