BEFORE CORONA (BC) – GROWTH RISES AND PRICE DIPS

At a time when we are looking at recession, there comes some small good news from IIP and CPI – we see some stabilization, not acceleration but now with the virus attack, guess all computations have gone askew.

IIP for Jan came in at 2% v/s -0.3% in Dec. And CPI for Feb came in at 6.58% v/s 7.59% in Jan. So prices dip and growth rises, yet we might not be able to celebrate this as we are beyond the Jan numbers. What matters now is how RBI reacts and how this virus impacts the economy.

Internals of CPI: (MoM)

• Food inflation – 10.81%  v/s 13.63%
• Cereals -  5.23% v/s 5.25
• Vegetables – 31.61% v/s 50.19%
• Pulses – 16.61% v/s 16.71%
• Clothing & footwear – 2.05% v/s 1.91%
• Fuel & light – 6.36% v/s 3.66%
• Housing – 4.24% v/s 4.2%

In terms of industries, eleven out of the twenty three industry groups  in the manufacturing sector have shown positive growth during the month of January 2020 as compared to the corresponding month of the previous year.

The industry group ‘Manufacture of tobacco products’ has shown the highest positive growth of 22.8 percent followed by 14.1 percent in ‘Manufacture of basic metals’ and 9.0 percent in ‘Manufacture of furniture’. On the other hand, the industry group ‘Printing and reproduction of recorded media’ has shown the highest negative growth of (-) 16.3 percent followed by (-) 11.6 percent in ‘Manufacture of computer, electronic and optical products’ and (-) 10.6 percent in ‘Manufacture of motor vehicles, trailers and semi-trailers’.

Internals of IIP: (MoM)

• Manufacturing – 1.5% v/s -1.2%
• Electricity – 3.1% v/s  -0.1% v/s
• Capital goods -  - 4.3% v/s  -18.2%
• Primary goods – 1.8% v/s 2.2%
• Consumer durables - -4  v/s -6.7%
• Intermediate –15.8% v/s 12.5%
• Mining – 4.4% v/s 5.4%
• Cons non-durables -  -0.3% v/s -3.7%

And well, Jan was expected to be high as PMI for the month was also at a 7-year high. Going ahead, some of its impact will be seen in Feb and but it will be felt more so in March numbers. If discretionary spending comes down, it will have an indirect effect on the industrial numbers. Manufacturing could take a blow once we come to March. Also, as such industries are working at lower capacity utilisations of around 73% and this virus will only push it down further. This in turn means that capex in the private sector taking off seems doubtful. So expecting credit offtake to increase if rates come down might be too naïve. This may not help in the immediate future but in the long run, when all this panic settles, we might see all the pent-up demand and buying pushing with more gusto than before. But for us to get there, we first need to get over the virus – maybe from a month from now…

Will RBI wait till April or will we have a surprise announcement any time soon, that is what we need to see.