January 11, 2013 / 5:52 AM / 5 years ago

Expert views - Industrial output falls in November

8 Min Read

A worker checks aluminium utensils inside a factory on the outskirts of Agartala, October 12, 2012.Jayanta Dey/Files

MUMBAI (Reuters) - India's industrial production contracted 0.1 percent in November from a year earlier, government data showed on Friday.

Analysts polled by Reuters had expected output to grow 0.7 percent annually. Revised data for October showed production at factories, mines and utilities grew 8.3 percent compared with 8.2 percent earlier.

Manufacturing, which constitutes about 76 percent of industrial production, rose 0.3 percent from a year earlier. In the April-November period, industrial production expanded an annual 1.0 percent.



"November output figures were weak but in line with expectations. Because of the festival related distortions, the right way to look at these numbers is to average the October and November growth. It comes to 3.9 percent compared to 0.4 percent for the year ago period, implying that demand conditions have improved. That said, the recovery in industrial demand continues to be modest.

"With investment demand yet to pick up and consumption slowing at the margin, recovery in exports will be critical for improvement in industrial output. Such an outlook bolsters the case for a rate cut, however the timing and extent of rate cut will be dictated by the inflation trajectory. We expect RBI to cut the repo rate by 25 bps in the January policy review."

Radhika Rao, Economist, Forecast Pte, Singapore

"Correction in the November headline IP was largely priced in on passage of festive demand and manufacturers' possibly drawing down on inventories rather than stepping up production towards end-2012. Whilst the widespread of market expectations continues to signal uncertainty on the trajectory alongside clear disconnect with the PMI trends, the common strain now emerging is that the sector has likely bottomed out.

"Building expectations that the RBI will lean towards rate cuts in Q1 2013 and easing inflationary prints could result in part stabilisation in demand indicators, which by extension should be positive for factory output. However, we are far from a full recovery at this juncture, especially as structural constraints persist."


"I think there are more signs of a bottom appearing now and sentiment has turned. This number was expected to be low this time but momentum is healthy and if RBI cuts rates in January then it will be another boost. I expect the next couple of prints to be better driven by consumer demand and manufacturing activity and also expectations of rate cuts."


"Poor IP data mostly reflects base effects but will still weigh on sentiment and cap the INR for today. Bottoming out of growth is gradual indeed, but we still like the currency a top Asian pick in 2013."

Anubhuti Sahay, Economist, Standard Chartered Bank, Mumbai

"This is the fourth negative print observed in the eight months of 2012/13 and shows that October IIP of 8.2 percent was driven by a weak base effect/festive season. Indeed the index corrected by -2.3 percent month-on-month.

"The next print is unlikely to be very strong. Overall, this again reminds of the weak industrial activity in the economy and strong positive prints (favourable base effect in Jan-March 2013) should not be inferred as a rebound in the segment.

"We expect RBI to reduce rates by 100 basis points in 2013. With weak economic activity a rate cut is likely and Monday's WPI would decide whether we get it on January 29."

Upasna Bhardwaj, Economist, Ing Vysya Bank, Mumbai

"While today's IIP figures remain dismal as per our expectations, we see a clear bottoming out of the industrial growth with a mild improvement going forward. No change in policy expectations post this data. We continue to expect the RBI to gradually shift its focus towards tackling growth with a 25 bps cut in the repo rate at the January 29 meeting."

Shakti Satapathy, Fixed Income Analyst, Ak Capital, Mumbai

"The data is a reflection of higher base effect and reiteration of dismal growth in manufacturing and mining activities. We expect the negative number would lead to a repo rate cut in the forthcoming policy meet. However, with a softening WPI number expected, the central bank might consider a bigger repo cut (50 bps) and pause in the subsequent meet."

Anjali Verma, Economist, Phillipcapital, Mumbai

"I was against consensus and was expecting a 0.7 percent decline in November. If we see the headline number, it is more or less in line with the trend. October was an aberration due to the low base. I expect the full year IIP growth at 2 percent.

"The inflation data on Monday will be very critical. I am still sticking to a 25 bps repo rate cut on January 29."

Gautam Singh, Economist, Anand Rathi Securities, Mumbai

"We think growth has bottomed out. Going ahead IIP growth will be between 2-5 percent over the next 3-4 months.

"We remain bearish on inflation with the December number likely around 7.6 percent and the October number revised up to 8 percent. We think that the RBI will hold rates on January 29 and may do a CRR cut only. The central bank will likely ease by 75 bps in March-June with a front-loading in March."

Shubhada Rao, Chief Economist, Yes Bank, Mumbai

"The contraction in capital goods after a brief reprieve last month reiterates that investment cycle is yet to pick up in a meaningful manner.

"As such, consumption-led growth, which in itself is moderating, has further downside risks to growth. However, our estimate for growth is at 5.7 percent, and for industrial production under 2 percent, for the ongoing financial year.

"We are of the view that the Reserve Bank of India will definitely cut rates by 25 basis points, maintain a dovish tone, and a commitment to maintain liquidity in the comfort zone through open market operations, which will pave way for better transmission."

Market Reaction

The rupee was little changed at 54.50 per dollar. The benchmark 10-year bond was flat at 7.85 percent, while stocks retained their gains, with the Nifty up 0.3 percent.


- India moved to mend its strained finances, which have hit capital investment and put its sovereign credit ratings in peril, by raising railway passenger fares after a gap of nine years and sources in the government said it had proposed an increase in heavily subsidised fuel prices to rein in a swollen fiscal deficit.

- Car sales are likely to post their weakest growth in nine years this financial year, compounding India's gloomy economic outlook, as the automotive industry battles with high interest rates and slowing economic expansion.

- The government is likely to approach parliament next month to water down retrospective tax rules that damaged investor confidence, two finance ministry officials said on Monday, a move that may help settle British-based Vodafone Group Plc's (VOD.L) long-running $2 billion tax dispute.

- India's current account deficit widened to a record high of 5.4 percent of GDP in the September quarter as export growth slowed more sharply than imports, with a similar gap expected in the December quarter likely to prolong weakness in the rupee.

Reporting by India Treasury, Equities teams; Editing by Ranjit Gangadharan

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