IIP Update - Weak consumption demand likely to weigh on growth - Angel Broking

Key highlights

- The Index of Industrial Production (IIP) for November 2013, and import contraction for the seventh straight month during December 2013, continued to reflect weak consumption demand in the economy.

- The 2.1% contraction in IIP during November 2013, despite a 1.0% de-growth in the corresponding period of the previous year, surprised negatively as market expectations pegged a 1.0% growth in output.

- The production of consumer durables continued to contract for the 12th straight month and weighed substantially on the overall index by 330bp.

- On a positive note, production in intermediate goods reported a 3.3% growth during the month. Further, basic as well as capital goods production also witnessed marginal growth of 0.7% and 0.3% respectively.

- Cumulatively during the April - November 2013 period, industrial output marginally declined by 0.2% as compared to a tepid 0.9% growth in the corresponding period of the previous year.

- Meanwhile during December 2013, the trade deficit came in at USD10.1bn as against USD9.2bn in the previous month and USD17.5bn in December 2012, aided by significant non-oil import compression.

- We continue to believe that sluggish domestic demand, in addition to restraints on government expenditure, is likely to weigh on GDP which is expected to grow by a moderate 4.8% during FY2014. Growth is likely to be largely supported by the performance of exports and agriculture.

- In view of continuing sluggishness in growth and with food inflation expected to moderate, we expect the Reserve Bank of India (RBI) to hold monetary policy rates during its January 28 policy review.

Source : Equity Bulls

Keywords