Mixed Set Of Data – IIP And CPI Grows

As a couple of macroeconomic data were released today, one of them came in on a good note while the other one disappointed the street. The Index of Industrial Production (IIP) numbers for the month of January 2013 came in at 2.4%, way above the market consensus of around 1%. While the Consumer Price Index (CPI) Inflation for the month of February 2013, came in at 10.91%, continuing its upward trend, impacting the consumers at the ground level.

IIP numbers came in on the higher end, which provided a boost to the street’s confidence. The cumulative IIP growth for the period from April to January 2013 came in at 1% over the corresponding period in the previous year. The number for the month of December 2012 had came in at -0.6%. Also, after two consecutive months of negative IIP growth (November -0.1%), this time the number has came in on a positive note and above the street’s expectations.

For the month of January 2013, the growth for the three major sectors which includes Manufacturing (weighs 75.52% of total index), Mining (14.15%) and Electricity (10.31%) came in at -2.9%, 2.7% and 6.4% respectively. The cumulative growth for the period from April to January 2013 for the three sectors came in at -1.9%, 0.9%, and 4.7% respectively.

On the other hand, the CPI number continues its trend of moving northward, which is obviously not good for the economy as it impacts the common man directly. The CPI number for January 2013 increased by 12 basis points to 10.91% on a MoM basis. Rural inflation stands higher at 11.01% against urban inflation which stood at 10.84% for February 2013.

Overall, it is the food inflation which is sky rocketing. For the month of February 2013, food inflation grew by 13.73% on a YoY basis. It was majorly lifted higher by the rise in prices of vegetables (up by 21.29% on a YoY basis), Cereals and Products (17.04%) and egg, fish and meat (up by 15.72%). Also, the prices of pulses and various products and sugar grew by more than 12%.

As soon as the numbers were announced, the markets moved southwards. At present, both the Sensex and Nifty are trading down by 0.5% and 0.6% respectively. A higher CPI number is bad for the economy and good IIP numbers would again make the RBI think twice before cutting down rates. One should note that a 25 basis points repo cut in the RBI March 19, 2013 monetary meet is already factored in the price.

We believe that the apex bank usually looks at WPI numbers which are due on March 14, 2013 (for the month of February 2013). Hence one should just look at WPI numbers and then take a final call of what the RBI is likely to do. Further, we believe that inspite of the IIP numbers surprising the street positively; market participants would still demand a dovish stance from the Governor D Subbarao.