IIP FALLS, CPI RISES – THE SAGA CONTINUES

It was widely expected that IIP for Feb would contract around 3% and it came in higher at (-)3.6% v/s (-)1.6% (MoM), with only electricity being in the positive, that too at a measly 0.1% but down from 5.5% in Jan.

This sharp contraction in IIP can be attributed to the 3.7% contraction in manufacturing, much wider than the 2% contraction seen in Jan.

And retail inflation or CPI for March came in at 5.52 v/s 5.02% (MoM) but then again, we should not really get too perturbed as RBI, for some time now, will not pay attention; RBI, last week, kept the inflation target unchanged at 2-6% for the next five years, until the financial year 2025-26.

Also in the coming months, we could see CPI going up further as the pandemic raised its ugly head and the imminent threat of a lockdown, forced many to stock up on supplies, something which we saw last year too in March.  The rising cost of commodities are showing their impact on the margins of the companies and we will see more of this in the coming months too.

The market has kind of shrugged off tracking the IIP, really. It does not matter much as it’s like putting a number to the truth we all know – growth is down. And given the way in which the pandemic is rising and lockdown once again round-the-corner, growth is on the negative trajectory too. Thus if we had any hopes of a recovery, that does not seem to be visible on the horizon any time soon.

The Sensex tanked over 1700 points today as the market is now worried about the growth – Maharashtra, the worst affected is the financial capital of the country and if that state gets on its knees now, which looks inevitable, the GDP of 11% assumed by the market could vanish into thin air.

What has also been seen this month is the sell-off by FIIs; collectively in this month so far, they have withdrawn a net Rs.929 crore (Rs.740 crore equity + Rs.189 crore debt) from the Indian markets. More than the Covid, it is the depreciating rupee which is leading to the selling. The Rupee today, vis-à-vis the US$ went below Rs.75/$.

The overhang of Covid and the lockdown apart, the market will be ruled by the earnings – TCS numbers for Q4FY21 are expected today and Infosys is scheduled for the 14th.

Yes, under the current circumstances, IIP seems irrelevant as the growth contraction story could get worse if the pandemic is not brought under control soon.