 "Market analysts not reading much in Oct IIP data")
The markets are not reading too much into the index of industrial production (IIP) data for October, released after market hours on Friday, which showed India's industrial production in the month contracted 4.2 per cent — the most in three years — compared with (-) 1.2 per cent in October last year.
After a weak start that took the benchmark indices, the BSE Sensex and the National Stock Exchange's Nifty, down nearly one per cent in opening moves on Monday, the markets staged a recovery in late morning deals. The Sensex ended the day 0.1 per cent lower that its previous close, at 27,319, while the Nifty ended nearly unchanged at 8,219.
Meanwhile, wholesale price index (WPI)-based inflation, data for which were released around noon, dropped to zero per cent in November from a five-year low of 1.7 per cent the previous month. According to reports, this was for the first time ever that the wholesale inflation rate stood at zero. It had stood at 7.52 per cent in November last year.
The IIP decline in October, data suggest, was primarily led by a sharp 7.6 per cent contraction in the manufacturing sector, against an expansion of 2.5 per cent the previous month. Experts also partly attribute the dip to a larger-than-expected impact of a Diwali-related base effect. The holidays this year fell in October; last year they were in November.
Analysts believe the IIP fall is an outlier and should not be taken as a sign the growth momentum is flagging. On the contrary, they expect a sharp pullback in industrial production growth going ahead.
"We think IIP data are underestimating the real industrial cycle, and this anomaly will be corrected only when the final data are released (with the annual survey of industries)," Sonal Varma, an economist with Nomura, said in a note.
"Auto sales, particularly those of medium and heavy commercial vehicle (MHCV), rebounded sharply in November, after disappointing production numbers in October. Consumer and business sentiment remains high, and the recent fall in inflation and commodity prices should both benefit discretionary demand and expand firms' profit margins. So, we believe the conditioning factors for a more sustainable growth recovery are already in place and we expect growth to trend higher," she added.
Likewise, Pranjul Bhandari, chief India economist at HSBC Research, says the unexpected weakness in IIP was across the board and cautions against reading too much into one data point. "There could be some comfort next month, given our manufacturing PMI (Purchasing Managers Index) for November has shown a healthy uptick, led by the consumer sector," he says in a note.
Market strategy
Besides the domestic factors and key economic data, analysts say the markets will also look at their global peers for cues in the short term and a market correction should be used as an opportunity to buy.
"The markets have seen a healthy correction in December. The short-term outlook will also depend on how global markets play out. The Dow Jones Industrial Average (DJIA) and S&P 500 saw a near-two per cent fall on Friday. To that extent, the Indian benchmarks held up nicely. Moreover, technical chartists suggest the Nifty has support at the 8,200 level. So, we expect some demand (for stocks) to kick in around that level," suggests Sunil Jain, head of retail research, Nirmal Bang.
Deven Choksey, managing director & chief executive officer, K R Choksey Shares and Securities, expects higher growth in the second half of the financial year, led by resumption of infrastructure/construction-related activities. He says consumers have been waiting for an interest rate cut by the Reserve Bank before they start consuming more.
"The markets will take the WPI numbers positively, and RBI might have to cut rates sooner than expected. Food- and fuel-related inflation has been under control for some time now. Fuel prices are expected to drop further, on the back of a decline in crude oil prices. So far, we have not been getting the full benefit of a fall in oil prices, due to inventory in the pipeline. With crude oil prices likely to remain low, the benefits will accrue going ahead. Every correction in the market is a fantastic opportunity to buy," Choksey adds.
After a weak start that took the benchmark indices, the BSE Sensex and the National Stock Exchange's Nifty, down nearly one per cent in opening moves on Monday, the markets staged a recovery in late morning deals. The Sensex ended the day 0.1 per cent lower that its previous close, at 27,319, while the Nifty ended nearly unchanged at 8,219.
Meanwhile, wholesale price index (WPI)-based inflation, data for which were released around noon, dropped to zero per cent in November from a five-year low of 1.7 per cent the previous month. According to reports, this was for the first time ever that the wholesale inflation rate stood at zero. It had stood at 7.52 per cent in November last year.
The IIP decline in October, data suggest, was primarily led by a sharp 7.6 per cent contraction in the manufacturing sector, against an expansion of 2.5 per cent the previous month. Experts also partly attribute the dip to a larger-than-expected impact of a Diwali-related base effect. The holidays this year fell in October; last year they were in November.
Analysts believe the IIP fall is an outlier and should not be taken as a sign the growth momentum is flagging. On the contrary, they expect a sharp pullback in industrial production growth going ahead.
"We think IIP data are underestimating the real industrial cycle, and this anomaly will be corrected only when the final data are released (with the annual survey of industries)," Sonal Varma, an economist with Nomura, said in a note.
"Auto sales, particularly those of medium and heavy commercial vehicle (MHCV), rebounded sharply in November, after disappointing production numbers in October. Consumer and business sentiment remains high, and the recent fall in inflation and commodity prices should both benefit discretionary demand and expand firms' profit margins. So, we believe the conditioning factors for a more sustainable growth recovery are already in place and we expect growth to trend higher," she added.
Likewise, Pranjul Bhandari, chief India economist at HSBC Research, says the unexpected weakness in IIP was across the board and cautions against reading too much into one data point. "There could be some comfort next month, given our manufacturing PMI (Purchasing Managers Index) for November has shown a healthy uptick, led by the consumer sector," he says in a note.
Market strategy
Besides the domestic factors and key economic data, analysts say the markets will also look at their global peers for cues in the short term and a market correction should be used as an opportunity to buy.
"The markets have seen a healthy correction in December. The short-term outlook will also depend on how global markets play out. The Dow Jones Industrial Average (DJIA) and S&P 500 saw a near-two per cent fall on Friday. To that extent, the Indian benchmarks held up nicely. Moreover, technical chartists suggest the Nifty has support at the 8,200 level. So, we expect some demand (for stocks) to kick in around that level," suggests Sunil Jain, head of retail research, Nirmal Bang.
Deven Choksey, managing director & chief executive officer, K R Choksey Shares and Securities, expects higher growth in the second half of the financial year, led by resumption of infrastructure/construction-related activities. He says consumers have been waiting for an interest rate cut by the Reserve Bank before they start consuming more.
"The markets will take the WPI numbers positively, and RBI might have to cut rates sooner than expected. Food- and fuel-related inflation has been under control for some time now. Fuel prices are expected to drop further, on the back of a decline in crude oil prices. So far, we have not been getting the full benefit of a fall in oil prices, due to inventory in the pipeline. With crude oil prices likely to remain low, the benefits will accrue going ahead. Every correction in the market is a fantastic opportunity to buy," Choksey adds.