October IIP throws up a sharp negative surprise
- Industrial production surprised negatively at -4.2% YoY for October (Prior: 2.8% YoY; ICICI: 2.4% YoY)
- November CPI declined sharply to 4.4% YoY (ICICI: 4.2%) amid a decline in food prices and favourable base effect
- We expect the RBI to ease policy rate in the February meeting
October IIP throws up a sharp negative surprise
IIP came in at a dismal -4.2% YoY (ICICI Bank 2.4% YoY) as compared to a revised 2.8% YoY previously. This print comes as a significant surprise and the disaggregate details are fairly worrying. We note that this outturn comes in the backdrop of robust core index performance at 6.3% YoY and an improvement in leading indicators such as the PMI.
The contraction in manufacturing to the tune of 7.6% YoY was more than expected and reinforces the belief that the industrial cycle is yet to recover and any investment/manufacturing led growth recovery seems to be a way off. The other factor, which concerns us is the steep fall in consumer durables (-35.2% YoY) and an overall contraction in consumer goods (-18.6% YoY). So far the first half GDP data seemed to indicate that consumption demand was showing steady growth. However, the October IIP indicates this component may be slowing down despite significant improvement in inflation and a lowering of fuel prices.
The other components such as mining and electricity registered robust growth. On the use based side, with the exception of basic goods all other components have shown contraction for October.
