Ind-Ra expects industrial production in April 2016 to benefit from better performance in the core sectors of the economy. IIP surprised on the downside and clocked a negligible growth rate of 0.1% in March 2016 (February 2016: 2.0% yoy) primarily due to the negative growth rate of 1.2% in manufacturing. The eight core infrastructure industries that comprise around 38% of IIP grew 8.5% yoy in April 2016 as against 6.4% yoy in the previous month. Core sector industries such as petroleum refinery products (April 2016: 17.9% yoy) and steel (April 2016: 6.1% yoy) have shown robust growth, on the back of an extremely low base. The strong growth in refinery products output is in line with the increase in its consumption. Electricity, which has a weight of 10.3%, led the growth in the core sector with a growth rate of 14.7% in April 2016 as against 11.3% in the previous month. The growth in cement output (April 2016: 4.4% yoy) is also encouraging and appears to be aided by the revival of the road sector. Ind-Ra believes higher electricity output, growth in vehicle production, rising cement and steel production will lift IIP in April 2016.
Ind-Ra expects WPI to show a modest uptick in May 2016, on the back of rising oil prices and high pulses and sugar prices. WPI inflation is expected at 0.7% yoy in May 2016. WPI moved into the positive territory and clocked a growth rate of 0.34% in April 2016 after 17 consecutive months of contraction. Pulses continue to be the sore point so far as food inflation is concerned. At the price rise of 36.4% in April 2016, pulses inflation has remained in excess of 30% for 11 consecutive months. Sugar inflation rose to 16.1% in April 2016 compared to 6.2% in the previous month.
Ind-Ra expects May 2016 retail inflation to remain unchanged at 5.4% yoy from the previous month. The increase in April consumer prices was led by food inflation that rose to 6.3% yoy from 5.2% in the previous month. High value food items such as meat, fish, fruits and vegetables drove food inflation higher in April 2016. RBI in its second bi-monthly monetary policy review held on June 7 expressed concern about the upside risks to the inflation trajectory despite the expectation of a normal monsoon.
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