DEC IIP - LONG WAY TO PLOD

By Ruma Dubey

The market, as such was not expecting much. Largely it was supposed to be flat to marginally negative and no one had much betting on the Dec IIP.  And the IIP did not shock, it came in at a degrowth of 0.6%. This just goes on to reiterate what we knew all along - economic activity is definitely weak and with exports down, car sales down , manufacturing down, overall picture was that of significant weaknesses.

Corporate demand remains weak and whatever demand we are seeing is mainly from retail demand. Steel used for construction demand is picking up but not that used for making cars. So there is some construction activity, majorly in rural India but this does not really reflect the true economy.

The biggest fall is in the consumer durables which showed a degrowth of a massive 8.2% from a growth of 1.9%. Clearly, December the sector would have struggled with stock, given the post Diwali demand tapering off.  What this also means that consumption is slowing down and this is worrisome, along with high stocking by companies.

What we are seeing is a broad based slowdown. For FY13 till date, manufacturing comes at 0.7% and this is way off the projected 1.9% for FY13 and achieving that now seems like an impossible task. We might actually get just around the estimated 5% growth for FY13 but it would be just about it.

There was more bad news. CPI came in at 10.79% v/s 10.56% (MoM) and January food inflation remains stubbornly in double digits at 13.04%. There is no major pick up on supply and thus food being at these levels is not a surprise. Manufacturing inflation is there, cost of manufacture has gone up but most are not able to pass on the costs to the consumers as demand, as such is low.  Looking ahead, the rupee and the crude trajectory would be critical. It is really frustrating that despite RBI going behind inflation with such vengeance, it just refuses to relent and growth has become the sacrificial lamb in this fight to curb inflation. But then again, if probably RBI had not been as aggressive as it has been, maybe growth as such would have suffered as inflation would then have shot through the roof, affecting demand.

In FY13, growth has bottomed out in Q3 and maybe we could see pick up from Q4, albeit very marginal. And in two quarters for FY14 would be revised due to base effect but we could see uptick from H2.

Let us just hope that what we are seeing now is the last of the bottoming out and soon, in a few months we could see some uptick.

All eyes are now on the Budget and the market is hoping that Chidambaram gives the economy the much needed turbo boost of growth. Well, hope springs eternal…..