IIP, CPI, Trade deficit - Growth grinding lower, Trade Deficit and Inflation higher - PhillipCapital

- Sep'12 IIP came in much below expectations led by sharp decline in capital goods. Sequential de-growth of -0.9%. Aug'12 IIP revised down to 2.3% from 2.6%.

- Oct CPI remained stable at 9.75%; MoM growth at 0.7%

- Trade deficit for Oct'12 jumped to US$ 21bn (highest ever)

- GDP growth revised lower to 5.4% from 5.9%.

IIP pulled down by Capital goods: IIP growth for Sep'12 stood at -0.4% YoY, - 0.9% MoM (MFG YoY estimate: 2.6%, Consensus estimate: 2.8%). Growth rate in the previous month stood at a revised 2.3% and 2.5% a year ago. The 3-month moving average of IIP growth stood at 0.6% vs. 3.2% a year ago. On a weighted contribution basis, significant negative contribution to IIP growth rate was made by Machinery (-0.5%), Tobacco products (-0.4%), and Furniture (-0.4%). Highest positive contribution came from Coke, Refined petroleum products (0.5%), Apparels (0.4%), and Food products (0.3%). On an annual basis, 10/22 industries vs. 14/22 industries last month, recorded negative growth. Amongst the use-based segment, all the three segments except consumer goods de-grew sequentially. Consumer goods rose by 2.6% MoM, -0.3% YoY; Basic goods recorded a decline of -3% sequentially, followed by Intermediate goods (-2.9%), Capital goods (-0.3%), Consumer durables (8.4%), Consumer non-durables (-2.4%).

CPI remains high: CPI for Oct'12 remained stable at 9.75%; recorded sequential rise of 0.7% (lowest in 8-months). MoM rise in Food and beverages was lower (when compared with historical data) at 0.6%, Fuel (1%), Housing (0.8%), Clothing (1.1%), Medical care (0.7%), Transport & communication (0.8%), and Personal care (0.7%). Rural CPI rose by 0.9% MoM and urban CPI by 0.6%.

Trade deficit at historical high: Trade deficit for Oct'12 rose to US$ 21bn vs. US$ 18.1bn last month and US$ 17.5bn last year. Exports remained stable at US$ 23.2bn while imports rose substantially to US$ 44.2bn (US$ 41.7bn last month). Sequential rise in non-oil imports was much sharper than the oil imports. Non-oil imports stood at US$ 29.4bn (vs. US$ 27.7bn last month) and Oil imports at US$ 14.8bn (vs. US$ 14.1bn last month).

GDP growth target revised lower: We are lowering our FY13E GDP estimate to 5.4% from 5.9%, led by cut in IIP and Services growth rate. We do not believe that the measures announced by the government so far will have any positive impact on FY13 GDP growth estimate. Q2 average IIP growth rate could result in below-5% GDP growth rate in Q2FY13, thus bottom is yet to be made. Government should rather focus on fast clearances of the projects and ways to obtain faster financial closures. Government's focus on lowering fiscal deficit is acknowledged, however, those measures may not boost growth. Also path to fiscal consolidation is unknown. Rising CAD will keep Rupee under pressure, thus negative for inflation.

Source : Equity Bulls

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