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It seems that Raghuram Rajan is the good omen the economy was waiting for. Even the IIP seems to have suddenly improved way beyond market expectations, though the reported figure is before Rajan assumed office.
Against market expectation of -0.2, Index of Industrial Production (IIP) posted a growth of 2.6% for July 2013 over previous year. What is more important is that manufacturing has finally shown a growth of 3% but the surprise package is a sharp 15.6% growth in the capital goods segment.
A closer look at various contributors to growth shows that benefit of rupee depreciation has started to reflect on the economy. Export oriented sectors like textile (apparels) and leather goods have grown by 44% and 16.5% respectively.
Electricity growth of 5.2% can be attributed to sharp growth from hydel power plants given good early monsoon in most part of the country.
Capital goods growth can be partly explained by a low base effect and pick-up in manufacturing and infrastructure activity. But the index number is too sharp to explain this growth. No other indicator, including credit off-take of project implementation hints towards such a sharp growth. One will have to wait for further details at the same time hoping that it is not a calculation error.
Basic and Intermediate goods have shown a moderate growth of 1.7% and 2.4% while consumer non-durables have grown by a respectable 6.8%. Among the sectors that continue to languish is consumer durable where growth has shrunk by 9.3% and consumer goods posted a marginal fall of 0.9%. Mining continues to show a fall of 2.3%.
On the inflation front too, retail inflation was marginally lower than analyst expectations. Consumer price inflation eased to 9.52% against an expectation of 9.64%, mainly on account of a fall in food inflation.
All eyes will now be on Rajan when he makes his maiden policy speech based on these economic data inputs along with what the Federal Reserve says.
Not long ago a 2.6% growth in IIP would have been considered disastrous but under the current circumstances, market would welcome these numbers, though banking stocks could be under pressure as chances for a rate reduction diminishes as growth improves.
