Industrial Production Update – August 2012 - Microsec

Reversing the trend of contraction witnessed during the previous two months, India's Industrial Production grew by 2.7 percent YoY in August 2012 - the highest in the past six months. However, July's number was revised downward to –0.2 percent YoY from 0.1 percent YoY reported earlier. Much of the upside in August print was contributed by a favourable base effect. In value terms, the Index of Industrial Production (IIP) actually decreased to 165.7 in August from a revised 166.9 in July 2012, registering a sequential fall of 0.7 percent. On a segmental basis, performance of Manufacturing, Mining and Capital Goods sectors were more encouraging. Positive surprise came from the Capital Goods sector, which grew by 8.4 percent on MoM basis. Consumption has also shown a positive turnaround. Consumer Durables and Consumer Non-Durables both registered strong YoY numbers. The cumulative growth for the period April-August FY2012-13 stood at 0.4 percent YoY against 5.6 percent YoY in the corresponding period of the previous year.

Outlook: Although, the overall trend in IIP has shown some improvement, we need to see the sustainability in coming months. Showing some sign of improvement, Capital Goods sector has been growing on sequential basis in last four months. With recent policy reforms, we expect a favorable investment environment going forward.

Policy Outlook: From the Reserve Bank of India's (RBI) policy point of view, the better than expected IIP growth number does not change the policy stance. Expected spike in WPI inflation post diesel price hike will create enough discomfort for RBI as inflation remains their top priority. So, we expect October policy meeting would be a non-event in terms of Repo Rate cut and RBI's actions are likely to remain more focused on CRR and OMOs route.

Source : Equity Bulls

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