MAY IIP HAS A GREAT FALL - WHO WILL PUT IT ALL TOGETHER AGAIN?
By Ruma Dubey
| PARTICULARS | May’13 | April’13 | March’13 | Feb’13 | Jan’13 | Dec’12 | Nov’12 | Oct’12 | Sept’12 | YoY |
| IIP | -1.6% | 2% | 2.5% | 0.6% | 2.4% | -0.6% | -0.1% | 8.2% | -0.4% | 2.5% |
| Cons Durable | -10.4% | -8.3% | -4.5% | -2.7% | -0.9% | -8.2% | 1.9% | 16.5% | -1.7% | 9.7% |
| Manufacturing | -2% | 2.8% | 3.2% | 2.2% | 1.1% | -0.7% | 0.3% | 9.6% | -1.5% | 2.6% |
| Capital Goods | -2.7% | 1% | 6.9% | 9.5% | -1.8% | -0.9% | -7.7% | 7.5% | -12.2% | -8.6% |
| Basic Goods | -0.4% | 1.3% | 2.6% | -1.8% | 3.4% | 2.6% | 1.7% | 4.1% | 3.5% | 4.4% |
| Mining | -5.7% | -3% | -2.9% | -8.1% | -2.1% | -4% | -5.5% | -0.1% | 5.5% | -0.7% |
| Electricity | 6.2% | 0.7% | 3.5% | -3.2% | 6.4% | 5.2% | 2.4% | 5.5% | 3.9% | 5.9% |
| Cons Non Durbl | 1.7% | 12.3% | 6.5% | 2.9% | 5.3% | -1.4% | 0.3% | 10.1% | 1.1% | -0.1% |
| Interm Goods | 1.5% | 2.4% | -0.2% | -0.7% | -2.5% | -0.1% | -1.1% | 9.4% | 1.8% | 3.4% |
May IIP shrunk by 1.6% and June Consumer Price Index (CPI) came in at 9.87% v/s 9.31% in May. It was a shocker of a number and somehow raises a niggling doubt in the mind – is this why the Govt decided to abruptly shift the timing of the release of this data from morning 11 to 5.30 in the evening. Or else the market was sure to have tanked, obliterating the better-than-expected numbers of Infosys for Q1FY14.
Prior to this, in the afternoon, trade account deficit numbers had come in and that indicated that exports too had shrunk by 4.6% and this was for the second consecutive month, to $ 23.79 billion in June 2013 on YoY. Imports also shrunk but by a much lower rate by 0.37% at $ 36 billion in the month, leading to a narrowed trade deficit of $ 12.2 billion. In May, the trade gap stood at $ 20.1 billion.
So we have alarmingly falling growth rates, manufacturing sector declining at a faster pace, exports also dipping and to top it all off, CPI has zoomed up further. Thus the seams from all ends of the cloth seem to be tearing off, leaving us wide open and vulnerable. With growths sagging and inflation zooming, clearly, RBI needs to do much more, maybe structural changes are required and not mere tinkering with interest rates. Raving and ranting about the inaction of the Govt is futile; it all falls on deaf ears and we can only hope that the silent scream of India Inc, which has now risen to a wail gets finally noticed by Mr.Chidambaram. Wish the govt showed more energy to get growth going rather than channelizing all its energies towards ushering in the disastrous Food Security Bill and keeping its “chair” intact.
Forget rate cut at the end of the month on 30th July, we now need to question whether RBI can afford a rate cut in this year at all!
Keep an eye on crude oil too, which too has been silently rising. The only solace could be that with the onset of monsoon, maybe food inflation will soon cool off. The depreciating rupee is adding pressure but once again the silver lining is that given the weak pricing power in the economy, it is unlikely that the effect of the falling rupee would be passed on to the consumer. A 1% fall in depreciation means a 10 bps rise in headline inflation.
The numbers are a reflection of the ground reality. The capital goods sector is terrible and so is consumer durables; this should have been expected given the consistent fall of production and sales of automobiles. This coupled with poor manufacturing means that nothing really is happening. Capital goods companies say that they do have enquiries but majority of them are not expected to get translated into orders. In the IIP numbers, capital goods include cables and wires, metal ancillaries, rubber and plastic goods, among others and like every month, data continues to remain volatile.
Monday is expected to be volatile unless Mr.Chidambaram decides to wake up and makes some slew of announcements over the weekend. That's wishful thinking......The rosy haze left by Infosys since the morning is now washed off completely and Bernanke’s voice seems to have got lost. The market could be waking up to a reality where, at the moment, things look bleak. We clearly do not have a rate cut to look forward, any time soon and probably need to once again concentrate on earnings, which sadly are not exactly a picture of optimism.
For now, enjoy the weekend, maybe catch up with a good movie; after all Monday is another day and us worrying will not magically wash away all these uncomfortable economic truths.