After the super duper day of trading, where the Sensex ended with a jaw dropping 481 points jump, the macroeconomic numbers were a dose of reality. The market might already be celebrating the election outcome, IIP numbers for January’19 are like a douse of cold water.

Jan IIP came in at 1.7% v/s 2.4% (MoM), driven down mainly by low manufacturing and retail inflation or CPI for Feb came in at a four month high at 2.57% v/s 2.05% (MoM). Nevertheless, it remains in the 2% range and worrisome is the fact that food inflation continues to remain in the negative. So on one hand, manufacturing in down, IIP growth is slow and the negative food prices brings the farm distress into perspective.

Internals of inflation (MoM):

• Food at -2.10 v/s -0.66
• Vegetables at -13.3 v/s -3.87%
• Fuel at 1.24% v/s 2.2%
• Housing at 5.10% v/s 5.2%
• Clothing & footwear at 2.73% v/s 2.95%
• Houshold goods and services at 6.29% v/s 6.54%
• Transport at 3.05% v/s 3.44%
• Health at 8.82% v/s 8.93%
• Education at 8.13% v/s 7.99%

In IIP, 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 2019 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of food products’ has shown the highest positive growth of 17.0 percent followed by 16.4 percent in ‘Manufacture of wearing apparel’ and 10.4 percent in ‘Printing and reproduction of recorded media’. On the other hand, the industry group ‘Manufacture of furniture’ has shown the highest negative growth of (-) 12.0 percent followed by (-) 9.0 percent in ‘Manufacture of fabricated metal products, except machinery and equipment’ and (-) 6.4 in ‘Manufacture of paper and paper products’.

Thus what does this mean – on one hand the macro economics are not good but the markets are exuberant. Is this because the market is able to see in the future, what we are not able to see or is it just irrational jump up?

People are already talking about RBI going for another 25 bps rate cut given the lower growth and what with the Govt coming under the Moral Code of Conduct, which means its hands are tied and cannot give any stimulus. But then again, RBI already gave a 25 bps rate cut which was not transmitted at all; so RBI cannot be the messiah now who can give impetus to growth.

The RBI meet is scheduled for 4^th April and the next IIP and CPI data will come in on 12^th April. But then, at that time, we are already into voting….only thing which will matter is who wins on 23^rd May.