IIP update - July 2012 - Microsec

India's Industrial Production grew by a marginal 0.1 percent YoY in July 2012 against a contraction of 1.8 percent YoY in June 2012. This flat to positive number was lower than our as well as consensus estimate of 0.5 percent. Despite a supportive base effect and lower contraction in Manufacturing (-0.2 percent YoY in July 2012 against -3.1 percent in June 2012) and Capital Goods (-5.0 percent YoY in July 2012 vis-à-vis 28.1 percent YoY in June 2012) sectors, the overall IIP was dragged down by a weaker performance in the Mining and Electricity sectors which grew at -0.7 percent YoY and 2.8 percent YoY respectively. In value terms, the Index of Industrial Production (IIP) decreased to 167.3 in July from a revised 168.4 in June 2012, registering a sequential fall of 0.7 percent. The cumulative growth for the period April-July FY2012-13 stood at -0.1 percent YoY against 6.1 percent YoY in the corresponding period of the previous year.

Outlook: IIP growth number is likely to remain in positive territory for the next couple of months on account of favorable base but overall economic activities are expected to remain subdued. Pointing towards a marked slowdown, HSBC Purchasing Managers' Index (PMI) for August 2012 expanded at its slowest pace since the past nine months. Eight core industries, having a combined weight of 37.9 percent in the IIP, grew 1.8 percent YoY in July 2012 compared to 3.9 percent YoY in June 2012.

Policy Outlook: Interest rate cut will still be driven by the inflation trajectory. Given the upside risk on inflation, we expect September policy meeting would be a non-event in terms of Repo Rate cut. RBI's actions are likely to remain more focused on CRR and OMOs route.

Source : Equity Bulls

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