APRIL IIP - WOH SUBAH KABHI TOH AAYEGI......
By Ruma Dubey
| PARTICULARS | April’13 | March’13 | Feb’13 | Jan’13 | Dec’12 | Nov’12 | Oct’12 | Sept’12 | YoY |
| IIP | 2% | 2.5% | 0.6% | 2.4% | -0.6% | -0.1% | 8.2% | -0.4% | -1.3% |
| Cons Durable | -8.3% | -4.5% | -2.7% | -0.9% | -8.2% | 1.9% | 16.5% | -1.7% | 5.4% |
| Manufacturing | 2.8% | 3.2% | 2.2% | 1.1% | -0.7% | 0.3% | 9.6% | -1.5% | -1.8% |
| Capital Goods | 1% | 6.9% | 9.5% | -1.8% | -0.9% | -7.7% | 7.5% | -12.2% | -21.5% |
| Basic Goods | 1.3% | 2.6% | -1.8% | 3.4% | 2.6% | 1.7% | 4.1% | 3.5% | 1.9% |
| Mining | -3% | -2.9% | -8.1% | -2.1% | -4% | -5.5% | -0.1% | 5.5% | -2.8% |
| Electricity | 0.7% | 3.5% | -3.2% | 6.4% | 5.2% | 2.4% | 5.5% | 3.9% | 4.6% |
| Cons Non Durbl | 12.3% | 6.5% | 2.9% | 5.3% | -1.4% | 0.3% | 10.1% | 1.1% | 2.3% |
| Interm Goods | 2.4% | -0.2% | -0.7% | -2.5% | -0.1% | -1.1% | 9.4% | 1.8% | -1.8% |
IIP for March, for the third consecutive month had come in higher and it was at a 5- month high. Well, that jolly ride has come to an end in April. The deceleration in IIP for April at 2% was truly unexpected. The only solace is that at least it was not as bad as April’12 which saw an overall de-growth.
Moods got further despondent when the CPI or retail inflation for May came in much higher than expected at 9.31% v/s 9.39% in April. This more or less means that a rate cut from RBI at this juncture seems highly unlikely. The only solace could be that with the onset of monsoon, these prices will soon cool off. This time though the depreciating rupee is adding pressure but once again the silver lining is that given the weak pricing power in the economy, it is unlikely that the effect of the falling rupee would be passed on to the consumer. A 1% fall in depreciation means a 10 bps rise in headline inflation.
The numbers are a reflection of the ground reality. The capital goods sector is terrible and so is consumer durables, where the fall of over 8% is worse than the Dec’12 deceleration. This coupled with poor manufacturing means that nothing really is happening. Capital goods companies say that they do have enquiries but majority of them are not expected to get translated into orders. In the IIP numbers, capital goods include cables and wires, metal ancillaries, rubber and plastic goods, among others and like every month, data continues to remain volatile.
At the same time, take a look at the sectors which have done well in the manufacturing sector. 13 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of April 2013. The highest growth was shown by the apparel, dressing and dyeing of fur sector – up 86.6%.
Slow growth is consistently driven by investment collapse. Cutting interest rates is not the sole medicine and is not enough but it seems to be the only step at the moment which can buoy the sentiments to some extent. Those in the market feel like it’s a slam dunk decision – that RBI will not cut rates. And even if it does ease rates, it will not be aggressive, it would be very nominal, 25 bps and will that really make a difference to the market? It would be just for boosting sentiments, may not serve much purpose. Banks will not even transmit this rate cut so one wonders how this will help. Logically, keeping sentiments away, RBI will be very wary on engaging in further rate cuts immediately.
Putting things into perspective were the auto sector numbers put out by Society of Indian Automobile Manufacturers (SIAM), which for May showed a decline of 0.64% in sales of domestic cars, passenger car sales dropped 8.56% and commercial vehicles registered de-growth of 5.2%. SIAM expects positive growth returning to the sector only after 3-4 months.
If we need to look at the positive then we have to say that maybe we are getting into a phase of consolidation. Over the next few months, at least for six more months, growth will be sluggish and in the lower single digit numbers. Balance sheets are stretched to the limit and there are very high levels of NPAs. Thus expecting things to change overnight or even in the immediate short run would be naïve.