IIP & CPI – REALITY HITS HARD

The markets were in a celebratory mood as was in the surge recorded today. The BSE Sensex rallied over 400 points to close the day over 349 points higher. The sectors which recorded the maximum gains were FMCG, IT, Banks, telecom, auto and metal.

The same cheer was expected to continue as long as the IIP and CPI data came in the positive. But that did not happen. Despite onion prices coming down, prices of meat and fish going up by 10.5% led to the CPI for Jan coming in at a shocker – 7.5%, which is much more than what most had expected. Many had expected the prices to fall but instead it has surged to 7.59% v/s 7.39% (MoM). This is a 6-year high, putting a tight lid on any expectation of a rate cut by RBI, anywhere in the near future.

Internals of CPI: (MoM)

• Food inflation – 13.63% v/s 14.1%
• Cereals -  5.25 V/s 4.36%
• Vegetables - 50.19% v/s 60.5%
• Pulses – 16.71% v/s 15.44%
• Clothing & footwear – 1.91% v/s 1.5%
• Fuel & light – 3.66% v/s 0.7%
• Housing 4.2% v/s 4.3%

IIP for Dec was also not good. It came in at -0.3% and the main laggard was manufacturing and capital goods too came as a shocker. Consumer non-durables fall is worrisome as it indicates that consumption of FMCG goods is also on the decline.

In terms of industries, 16 out of the 23 industry groups in the manufacturing sector have shown negative growth during the month of December 2019 as compared to the corresponding month of the previous year (Statement II). The industry group ‘Manufacture of computer, electronic and optical products’ has shown the highest negative growth of (-) 24.9 percent followed by (-) 20.3 percent in ‘Manufacture of machinery and equipment (-) 15.5 percent in ‘Printing and reproduction of recorded media’. On the other hand, the industry group ‘Manufacture of basic metals’ has shown the highest positive growth of 14.2 percent followed by 13.2 percent in ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ and 5.9 percent in ‘Manufacture of leather and related products.

Internals of IIP: (MoM)

• Manufacturing - -1.2% v/s 2.7%
• Electricity - -0.1% v/s -5%
• Capital goods - -18.2% v/s -8.6%
• Primary goods – 2.2% v/s 0.3%
• Consumer durables - -6.7% v/s -1/5%
• Intermediate – 12.5% v/s 17.1%
• Mining – 5.4% v/s 1.7%
• Cons non-durables - -3.7% v/s 2%

The mood on the Streets was upbeat today as there was increasing news coming in from China of the corona virus showing signs of receding. That apart, the feeling is that though things are not looking good at the moment, all the sops and the Budget will start showing a positive impact from next fiscal. We have one or two more quarter of pain for sure; upbeat which the market is celebrating today is what we could see from H2FY21.  The markets might not fall through the floor post these numbers of today. But initially the mood is estimated to remain low. The trend will then be decided by the performances of the companies – more of stock specific action.