IIP For May 2012 At 2.4%

The Index of Industrial Production (IIP) for the month of May 2012 came in at 2.4 per cent which was higher than the street expectations of around 1.7 per cent on a YoY basis. One should recollect that the IIP for the month of April 2012 came in at a meagre 0.1 per cent. The cumulative growth for the period April - May 2012-13 stands at 0.8 per cent over the corresponding period of the previous year. The muted cumulative growth for two months clearly indicates that we are going through tough times.

The broader market did not react much to this key economic data as the investors and trading community got disappointed with the June quarter result of IT major Infosys, which had a below-than-expected performance and further it also revised the growth outlook significantly downwards. The broader indices today closed their trading lower down almost 1.4 per cent.

Coming back to the IIP numbers, the three major sectors i.e. mining, manufacturing and electricity saw a mixed growth in the month of May 2012. Mining saw a negative growth of 0.9 per cent; manufacturing grew at 2.5 per cent while electricity grew by 5.9 per cent on a YoY basis. On a use-based classification, basic goods and intermediate goods grew by 4.1 per cent and 2.7 per cent respectively on a YoY basis. Further, consumer goods and consumer durables witnessed a good growth of 4.3 and 9.3 per cent respectively in the month of May 2012. Meanwhile, capital goods again disappointed as the sector witnessed a negative growth of 7.7 per cent on a YoY basis. The cumulative growth for the capital goods in 2012-13 stands at negative 13.8 per cent as the sector had also disappointed in terms of growth in the previous month.

There has been disappointment in IIP numbers in the few months, and one hopes that the growth seen this time would probably continue going ahead which would be favorable for the economy. One should note that IIP for the month of June 2012 is scheduled on 9^th August 2012.  

Now sights are set for the Wholesale Price Index (WPI) inflation data which is scheduled to be released on Monday, July 16 and the Consumer Price Index (CPI) data which is expected a day after i.e. on Wednesday, July 18, which will further let us know as to where the inflation is moving. One should note that the RBI keenly watches the inflation numbers and then takes action in the monetary review as to whether to cut the repo rate or not.

We at Dalal Street Investment Journal believe that inflation would continue to remain sticky in the near term and we again expect the RBI to maintain a status quo in its monetary meet which is scheduled for July 31. The WPI inflation for the month of May 2012 came in at 7.55 per cent and for the month of June we expect the same to be on the higher side.

However, we would advise our investors to watch out for the outcomes of these key events which will further give a direction to the broader markets. The June quarter result season has already started and hence one may see more volatility in the individual stock prices based on their results. Nevertheless, like always we would keep updating our readers about these actions through our Mindshare columns on the DSIJ website.