IIP: Numbers Surprise, But Rate Cut Hopes Fade

After remaining muted for most of the part of 2012, the Index of Industrial Production (IIP) has surprised everyone on the street. The data announced by Central Statistics Office shows that the IIP for the month of October 2012 grew at a solid 8.20 per cent. This is the fastest growth that the index has recorded in 2012 and is significantly higher than what was expected. To give you a perspective, there were expectations that the index would record a growth of 4.5 per cent. 

As mentioned earlier the IIP numbers remained muted for a large part of 2012, with the worst happening in September when IIP growth surprisingly came in the negative. The index had declined 0.40 per cent then. However, manufacturing has put in a robust performance in the Month of October 2012 with a strong growth of 9.6 per cent as compared to a decline of 6 per cent in October 2011. The point to note is that, despite such a strong performance in the month of October, the growth for manufacturing from April-October 2012 stands at just 1 per cent.  However, we feel it still is a major positive, as manufacturing activity has picked up. After the HSBC's Manufacturing Purchasing Managers Index (PMI) showed positive signs, the better numbers of growth in the Manufacturing IIP for the month of October 2012, strongly reflect on the fact that manufacturing is showing robust signs of improvement.

Improvement is seen on the mining front as well, with a marginal decline of -0.10 per cent as compared to negative 5.90 per cent registered during the same period last year. This should provide some solace to power companies that the mining activity is picking up pace. The shortage of coal was a major worry for them, impacting their production plans.

A closer look at the IIP numbers, throws up the fact that the consumer durables segment has been the best performer as it posted its strongest growth for 2012 of 16.50 per cent. Demand for goods ahead of the festive season has probably resulted in such a strong growth. Rather, it is the only index where the Growth for April-October 2012 is positive at 5.60 per cent (against 4.50 per cent in 2012). Even the Consumer Goods index has put in better numbers for October 2012, having gone up by 13.20 per cent followed by the Consumer Non-Durables Index which was up 10.1 per cent.

The most positive indication came from the Capital Goods segment which has registered a growth of 7.50 per cent in October 2012 (Negative 26.50 per cent in Oct 2011). We would like to remind investors that in 2012 the Capital Good index has remained consistently in the negative zone (Except in February 2012). The up-move in the index shows that the capex cycle is on revival path.