MAY IIP - A PLEASANT SURPRISE AFTER CRASHING MARKET

By Ruma Dubey

These May’14 IIP numbers indeed came as a very pleasant surprise, especially after the 348 points fall of the BSE.

This has been a week of numbers – all super important numbers, right from Railway Budget, Union Budget, Economic Survey and now the IIP. The market is nonetheless not too happy at the moment; or rather we should say the FIIs are not too happy with GAAR and that is reason for the crash today. There is confusion about when GAAR could become applicable and once that clarity comes in, which in likelihood will be from 1^st April 2017, the markets could once again assimilate the positives.

The May IIP of 4.7% was most certainly a nice surprise, especially when expectations were of IIP coming in at around 3.7 to 3.9%. This time around the growth was led by electricity and basic goods, unlike April, where bounce back was led by capital goods and electricity. The good news is that this time around there was no degrowth, with consumer durables and non durables showing a small recovery. The bounce back in manufacturing is also a positive. What is also good is that YoY, the picture currently looks good which means we are most certainly back on the recovery path.

In terms of industries, 16 out of the 22 industry groups  in the manufacturing sector have shown positive growth during the month of May 2014 as compared to the corresponding month of the previous year. The industry group ‘Furniture; manufacturing n.e.c.’ has shown the highest positive growth of 60.0%, followed by 37.1% in ‘Tobacco products’ and 33.7% in ‘Electrical machinery & apparatus n.e.c.’. On the other hand, the industry group ‘Radio, TV and communication equipment & apparatus’ has shown the highest negative growth of (-) 40.3%, followed by (-) 28.6% in ‘Office, accounting & computing machinery’ and (-) 7.4% in ‘Motor vehicles, trailers & semi-trailers’.

Some of the important items showing high positive growth during the current month over the same month in previous year include ‘Woollen Carpets’ (167.1%), ‘Cable, Rubber Insulated’ (128.6%), ‘Gems and Jewellery’ (127.1%), ‘Copper and Copper Products’ (89.2%), ‘Vitamins’ (66.4%), ‘Ayurvedic Medicaments’ (64.1%), ‘Stainless/ alloy Steel’ (39.8%), ‘Air Conditioner (Room)’ (38.5%) and ‘Scooter and Mopeds’ (28.9%).

On the other hand, important items showing high negative growth are: ‘Aluminium Conductor’ [(-) 60.3%], ‘Lubricating Oil’ [(-) 51.3%], ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 47.8%], ‘Computers’ [(-) 38.1%], ‘Polythene Bags Including HDPE & LDPE Bags’ [(-) 29.5%], ‘Antibiotics and its preparations’ [(-) 27.2%], ‘Commercial Vehicles’ [(-) 22.7%] and ‘Boilers’ [(-) 21.8%].

Well, all important economic data is now out in the open and it is time for the Govt to start working on these – time to walk the talk. These IIP numbers are all part of the UPA legacy and so to that extent, we cannot really give credit for this to the new Govt. It will take a while for the Modi sarkar benefits to start showing as numbers.

It is but a given that RBI is not going to reduce interest rates. We have to see the inflation data coming in on Monday and 14^th to assess whether we are looking at interest hike! Monsoon is playing truant and that is bound to have an effect on food inflation. Let us see how that pans out.

Budget or IIP, for the common man, it all boils down to cost of living, the cost of roti, kapda and makaan; except for kapda, the rest remains expensive.

For now, enjoy this pleasant reprieve from bad economic data over the weekend and look forward to actual economic measures getting underway from the Modi sarkar. Hopefully, if the Govt issues a clarification over the date of GAAR implementation, we will be back to bulls or else uncertainty will prevail with this good IIP having not really any major effect on the markets on Monday.