INSTANT VIEW 2-India's June industrial output up 7.8 pct y/y

Wed Aug 12, 2009 12:46pm IST

 NEW DELHI, Aug 12 (Reuters) - India's industrial output
INIP=ECI rose by a much faster-than-expected 7.8 percent in
June from a year earlier, data showed on Wednesday, driven by
higher demand for goods such as cars and increased mining
activity.
 The figure was higher than a forecast for an annual rise of
3.3 percent in a Reuters poll of economists.
 ------------------------------------------------------------
 KEY POINTS
 INDUSTRIAL OUTPUT:             June 2009           June 2008
 Annual growth in pct:                +7.8              +5.4
 Consumer goods                       +4.0              +9.9
 Consumer durables                   +15.5              +4.6
 Consumer non-durables                +0.3              +11.6
 Capital goods                        +11.8             +7.8
 Mining                              +15.4              +0.1
 Electricity                          +8.0              +2.6
 ------------------------------------------------------------
 - Manufacturing production INMFG=ECI rose 7.3 percent in
June from a year earlier.
 - May's annual growth rate was revised down to 2.2 percent
from 2.7 percent previously.
 - Industrial output rose 2.6 percent in the 2008/09 fiscal
year (April-March), down from 8.5 percent in 2007/08.
 COMMENTARY:
 MONTEK SINGH AHLUWALIA, DEPUTY CHAIRMAN, PLANNING
COMMISSION, NEW DELHI:
 "I always expect the positive trend (in industrial output)
to continue."
 "Government is aware that there is some moderation but let
me say 6 percent growth in a year of slump, I mean weak
monsoon, is a remarkable example of resilience of the economy."
 ATSI SHETH, CHIEF ECONOMIST, RELIANCE EQUITIES, MUMBAI:
 "The capital goods number has surprised us.
 "However, we are not sure 7.8 percent is sustainable given
that the drought is likely to dampen consumption and delay
investment."
 J.MOSES HARDING, HEAD OF GLOBAL MARKETS, INDUSIND BANK,
MUMBAI:
 "The impact of stimulus is built in, but the future is not
so good due to various circumstances -- poor monsoon, swine flu
etc. There are too many negative cues and a few positive cues."
 GUNJAN GULATI, ECONOMIST, JP MORGAN CHASE, MUMBAI:
 "The performance of mining sector, a key driver of this
month's strength, however, could get impacted in next two
months given the onset of seasonal rainfall.
 "Having said that, it is too early to derive significant
conclusions about the pace of recovery. We still continue to
see mixed signals on the economic activity, as the bank credit
demand remains weak while non-oil imports also remain sluggish.
 "On the policy stance, we need to see continued and
sustained strength in these economic indicators for the central
bank to begin normalizing their policy stance."
 ANAND RATHI FINANCIAL SERVICES, MUMBAI:
 "The number far exceeds expectations, partly due to a
depressed base in June last year, but all the numbers are
looking very good so it seems like the stimulus measures are
boosting industrial production.
 "This is especially credible as the external environment
and thereby India's export demand remains extremely subdued.
 "Going forward, we see industrial growth picking up pace
but for the current fiscal year as a whole, our target is that
industrial production growth will be around 5.5 percent and
current trends are in line with this forecast."
 RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:
 "Though the deficient monsoon has created an uncertainty
about the overall growth outlook, the industrial buoyancy at
this pace is definitely a strong positive signal. This means
that India is going to attract strong private capital inflows
and this augurs well for both the capital as well as the credit
markets.
 "At this stage it is difficult to say whether or not this
is a one-off number. But until May the growth was partly
contributed by the election-related spending but such a good
number for June means that the average industrial growth for
the year as a whole in the range of 6.5 percent to 7 percent
looks feasible."
 DEEPALI BHARGAVA, ECONOMIST, ING VYSYA BANK, MUMBAI:
 "Capital goods have come as a positive surprise and have
rebounded strongly. The numbers will likely be on the higher
side in the next quarter."
 A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY
DEALERSHIP, MUMBAI:
 "The numbers are clearly a surprise. It might be because
some sectors such as coal may have benefited due to the poor
monsoons so to that extent it would be a one-off case and I
would advise some caution in reading too much into the headline
numbers.
 "But it looks industrial output is being driven by strong
domestic demand though the poor monsoons may have a restraining
impact. But this shows recovery is well underway."
 MARKET REACTION:
 - The partially convertible rupee INR=IN bounced off the
day's lows and was at 48.29/30 per dollar from 48.32/33 before
the data. It had closed at 47.97/98 on Tuesday.
 - The 10-year bond yield IN060519AG=CC edged up 3 basis
points to 7.03 percent, the same level that it had ended at on
Tuesday.
 - The 30-share BSE index .BSESN trimmed losses of more
than 2 percent immediately after the factory output data.
 LINKS: Ministry of Statistics and Programme Implementation
website www.mospi.nic.in
 BACKGROUND:
 - The central bank said last month economic growth during
2009/10 (April/March) could be 6 percent with an upward bias.
 - The central bank left key policy rates unchanged to help
the economy recover faster.
 - More than a quarter of India's districts are facing
drought like situation and crop sowing was down 20 percent on
year, which could dampen rural demand for consumer goods.
 - The Indian economy grew 6.7 percent in 2008/09
(April/March), its slowest pace in six years.
 - A survey showed manufacturing activity expanded for a
third straight month in June, albeit at a slightly slower pace,
reflecting strong local demand but exports fell for the eighth
straight month.
 - The budget for 2009/10 offered tax breaks industrial
units, natural gas projects and stepped up spending for
infrastructure.
 - Since October, the central bank has cut its key lending
rate by 425 basis points, and the government has slashed
factory gate duties and service tax to protect growth and
jobs.
 (Reporting by India Treasury team; Editing by Himani Sarkar)



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