MAY IIP - OUTLOOK REMAINS CAUTIOUS
By Ruma Dubey
The May IIP, if the number was not negative or a slump, we should celebrate! 2.4% is not exactly trailblazing but in today’s uncertain times we should be happy with what we have.
The worst is not yet over. June will be dicey and the overall outlook remains cautious given the wishy-washy monsoon, mixed automobile numbers, plant shut downs in auto sector and demand showing slack. We have still not bottomed out and we are sure to see some more bumps.
Capital good continues to show wild swings, from -16.3% in April to -7.7% in May. Take a look at the table given above and check out the capital goods numbers over the past few months and you will see the extremely wild fluctuations. The fluctuation in the numbers on a MoM is extremely disturbing. How can one see such volatility? Since August 2011, we have consistently seen capital goods in the negative and Feb 2012 was a blip when it showed a huge positive growth at 10.6%.
Like in April, the only solace this month too is that the consumer goods and consumer non durables have shown a pick up. High positive growth during May on a YoY included Telephone Instruments including Mobile Phone & Accessories, Air Conditioner, Carbon Steel, Plastic Machinery including moulding machinery, conductor, aluminium, CR Sheets, steel structures, boilers, purified terephthalic acid and aerated water & soft drinks.
Items which showed high negative growth included Cable, rubber Insulated, gems and jewellery, sugar, Vitamins, furnace Oil, colour TV sets, colour TV Picture Tubes, Di Ammonium Phosphate and textile Machinery.
Once again, eyes are on RBI which is scheduled to meet on 31st July. Slow growth is consistently driven by investment collapse. Cutting interest rates is not the sole medicine and is not enough but seems to be the only step at the moment which can buoy the sentiments to some extent. Those in the market feel like it’s a slam dunk decision – that RBI will cut rates. But one has to take a bigger view and look at other macro factors, especially inflation and the depreciating rupee. Logically, keeping sentiments away, RBI will be very wary on engaging in further rate cuts. Last time itself RBI had indicated that there is little room for rate cuts and thus would ideally not indulge into any more monetary easing.
The ball has been in the court of the Govt for some time now. Everyone but the Govt seems to agree that there is policy paralysis. Infact the very mention of ‘policy paralysis’ gets a bored expression from people; the perception being that nothing is going to be done.
July 19th is the Presidential elections and there is huge expectation that things on the policy front will start moving once this is done away with. Last month, the mere mention that the PM had called a meet to explore ways to give impetus to infra sector growth pushed the markets up to over 400 levels. But that was that – it was just talk, no walk. Yet, it indicates that the market is ready to shrug off all bear sentiments if the Govt shows initiative.
For now, Q1 numbers will be the triggers and then eyes will be on the Presidential elections and hopes that the Govt will get to working.