|Post-Diwali spends up!|
|Friday, 13 January 2012 00:00|
Ignore the IIP spurt, key indicators getting weaker
Given how Pooja, Dhanteras and Diwali are all festivals around which so much consumer spending takes place, the November IIP spurt is as much of a surprise as the October contraction. Despite all the festival-spend, October IIP contracted 4.7%—within this, consumer durables fell a little bit and non-durables rose a similar amount. In November, in sharp contrast, IIP rose 5.9% and, within this, consumer durables rose a whopping 11.2% and non-durables by an even higher 14.8%. To compound the confusion over what data to rely upon, while both the November PMI and credit growth suggested a moderation in IIP was due, sales of cars and two-wheelers surged in November (relative to October) and the sharp jump in core-sector data for November (it rose 6.8% versus an anaemic 0.1% in October) also suggested IIP would rise (the core index has a 38% weight in IIP). In other words, it’s best not to look at individual indicators on a monthly basis, but to look at the larger trend, from quarterly GDP for instance. If you look at 3-month moving averages, Citi points out, IIP is down to around 1.1% right now from 7.1% at the beginning of the fiscal. The November data, for instance, shows a rise of 41.8% in medical equipment and 69.1% in publishing/printing—neither of the numbers look particularly believable, more so when you keep in mind the fact that exports growth has also slumped. The sharp fall in capital goods, though, is in keeping with the data from CMIE’s CapEx on the fall in the value of projects commissioned each quarter.
How the future months will look is difficult to say, given the volatility in the IIP, but Crisil projects an IIP of below 5% for the remaining months of the fiscal. More importantly, Crisil points out forward-looking indicators like cement dispatches and commercial vehicle sales have softened sharply in December. Whether this will prompt RBI to lower interest rates on January 24 remains to be seen, but the possibility of that remains low. The current bout of low food inflation is a reflection of the base effect, so it is unlikely RBI will reverse gear right now. Monday’s inflation figures may provide some more clarity.