NOT IIP BUT ELECTION OUTCOME TO IMPACT MARKETS

By Ruma Dubey

Lower base effect. That’s what has helped the January IIP look so good at 2.7%; both YoY as well as MoM, the number looks much ahead of all estimates. The demonetization effect is seen tapering off and that it what has helped the MoM numbers bounce back.

The capital goods sector is what helped boost this IIP to a large extent and this we have seen consistently for the past two months. And it is expected that this sector will remain in the positive growth for the coming months. Manufacturing and mining have shown a very good improvement too.

What this also shows is that we are not seeing any real effect of the demonetization. The lag is something which cannot be captured in the macro numbers and we need to wait for Annual Survey Data of Industries which will come one year down the line.

Actually the numbers are so coming in so distorted and so cut off from ground reality that very little attention is being paid to these numbers – they are announced and in a whisker, it is all over. If this is the relevance then we wonder how RBI and rest of the decisions can be made based on this data? The CSO is due to come with IIP on New series but one does not know when that will happen.

The problem with IIP is data collection which is irregular and inconsistent at both state as well as industrial level. IIP data is volume based index where data from surveys is collected through a variety of agencies. Most often they are inaccurate and misreported. If FIIs were accusing China of cooking their economic numbers and sending out a wrong picture, cannot help but wonder what message are we sending across.

IIP for January’17 came in at 2.7% v/s -0.1% in December and -1.6% in Jan’16. The cumulative growth for the period April-January 2016-17 over the corresponding period of the previous year stands at 0.6%, which is not really a very pretty picture. We are basically celebrating a less than 1% growth in industrial activity.

In terms of industries, nine out of the twenty two industry groups in the manufacturing sector have shown positive growth during the month of January 2017 as compared to the corresponding month of the previous year. The industry group ‘Electrical machinery & apparatus n.e.c.’ has shown the highest positive growth of 42.4%, followed by 21.8% in ‘Radio, TV and communication equipment & apparatus’ and 12.4% in ‘Basic metals’. On the other hand, the industry group ‘Office, accounting and computing machinery’ has shown the highest negative growth of (-) 16%, followed by (-) 14.8% in ‘Food products and beverages’ and (-) 13.4% in ‘Other transport equipment’.

Some important items showing high positive growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ (282.8%), ‘Fruit Pulp’ (121.5%), ‘Vitamins’ (46.9%), ‘HR Coils/ Skelp’ (40.0%), ‘Telephone Instruments including Mobile Phones and accessories’ (31.7%), ‘Plates’ (27.2%) and ‘Antibiotics and it’s preparations’ (25.9%).

Some important items that have registered high negative growth include ‘HR Sheets’ [(-) 39.6%], ‘Ship Building and Repairs’ [(-) 31.9%], ‘Sugar’ [(-) 28.2%], ‘PVC Pipes and Tubes’ [(-) 27.0%], ‘Molasses’ [(-) 26.0%], ‘Leather Garments’      [(-) 24.3%] and ‘Three-Wheelers (including passenger and goods carrier)’  

Will this have any effect on the markets on Monday? Absolutely not! Tomorrow is the D-day and the indices will dance only to the tunes of what happens in the UP elections tomorrow. Though a BJP win is discounted, we could still see a rally if that does happen. Any other hotchpotch coalition probability, the markets will sag.