Expert views - Industrial output slips 0.4 pct in Sept

MUMBAI Mon Nov 12, 2012 11:53am IST

An employee inspects a spinning wheel used to roll power wires at the Kei Industries, one of India's leading electrical equipment manufacturers at the industrial estate of Bhiwadi, in Rajasthan August 6, 2012. REUTERS/B Mathur/Files

An employee inspects a spinning wheel used to roll power wires at the Kei Industries, one of India's leading electrical equipment manufacturers at the industrial estate of Bhiwadi, in Rajasthan August 6, 2012.

Credit: Reuters/B Mathur/Files

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MUMBAI (Reuters) - India's industrial production fell by 0.4 percent in September from a year earlier, a much weaker-than-expected performance.

Analysts polled by Reuters had expected a rise of 2.8 percent in September output. Revised government figures released on Monday showed August output growth was revised down to 2.3 percent from 2.7 percent.

Manufacturing, which constitutes about 76 percent of industrial production, fell by 1.5 percent from a year earlier, the federal statistics office said.

COMMENTARY

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"An ugly print. Hence it is likely to raise expectation of an earlier action by the RBI, especially if it accompanied by a weaker inflation print on November 14th. However it is important to remember that IIP has been a pretty erratic series in the past. We will focus on the WPI number and expect the first repo rate cut in Q1 2013."

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"This month's factory output data is a negative surprise. We were expecting a rise of 2.5 percent. But monthly industrial production data is volatile, and it is difficult to give a long-term guidance based on one month's number.

"We still maintain our view that there will be some amount of industrial recovery in the second half of the current fiscal year ending in March. For the full year, we expect a rise of 4 percent."

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"Everything put together, the growth factor could incrementally put more pressure on the Reserve Bank of India to cut interest rates, and when they see inflation easing in the next few months, as is the expectation, that is when they will cut rates.

"However, next month, we are expecting a bounce in the factory output number because of the pre-Dewali demand."

SHAKTI SATAPATHY, ANALYST, AK CAPITAL, MUMBAI "The biased data is largely due to volatile capital goods sector. However, the other sub indices, including basic goods and intermediate goods signal a stability in the growth numbers. Further the PMI reading somehow defies any sharp drop in the growth expectation.

"Having said that, we believe this is high time for the central government to restore the investment sentiment by implementing and introducing some more policy stimulus, thus addressing the growth risk from the beginning of next fiscal (year). The number would hardly move the RBI in revisiting their stance given the volatile nature of the production data."

MOSES HARDING, HEAD OF ASSET-LIABILITY MANAGEMENT, INDUSIND BANK, MUMBAI

"The trend in growth and inflation is clear; downward pressure on growth and uptrend on inflation into the near term. So, no surprises from the IIP number and it is high time RBI gets into balancing act between growth and inflation."

ANJALI VERMA, ECONOMIST, MF GLOBAL, MUMBAI

"Typically, some kind of inventory buildup also happens in September, so the numbers are all the more disappointing.

"On the other hand, CPI (consumer price inflation) continues to remain high. Going by RBI's guidance, the IIP numbers will now make a strong case for a rate cut to happen in January."

DEVEN CHOKSEY, MANAGING DIRECTOR, KR CHOKSEY SECURITIES, MUMBAI

"Market is aware about it (muted IIP number) and therefore it will not get disturbed. To me, the biggest trigger would be policy decisions in winter session of parliament and rate easing by banks."

MEHRABOON IRANI, HEAD, PRIVATE CLIENT GROUP, NIRMAL BANG SECURITIES, MUMBAI

"Now with the stance more or less spelled out by RBI, market can only be sure that interest rate is coming, which will be taken positively."

MARKET REACTION

- The 1-year overnight index swap (OIS) rate fell around 3 basis points to 7.73 percent from levels before the data, while the 5-year OIS rate fell 3 bps to 7.12 percent, according to dealers.

- The 10-year bond yield was down 1 bps to 8.21 percent.

- The rupee was range-bound at 54.74/75.

- The Sensex was flat after the data.

BACKGROUND

- India's manufacturing growth inched up in October from September's 10-month low, supported by a pick up in new orders and an easing of price pressures.

- India's services sector grew at its slowest pace in six months during October as weakness in the United States and Europe hurt orders and forced firms to hire fewer workers, suggesting the worst of the economic slump is not over yet.

- The Reserve Bank of India may ease monetary policy as early as January, Governor Duvvuri Subbarao said, as price pressures ease in Asia's third-largest economy in the first part of next year on the back of slower growth.

- The headline inflation likely accelerated to an 11-month high in October on costlier fuel and food, a headache for the government in a battle with the central bank over spending and high interest rates ahead of state elections.

- The central bank left interest rates on hold last month but cut the cash reserve ratio for banks, defying pressure from the government to lower rates for the first time since April but also indicating it may ease policy in early 2013. (Reporting by MUMBAI Treasury and Markets Teams; Editing by Aradhana Aravindan)

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