IIP likely to be below 4% on fading base effect : Citigroup

Says that the base effect is likely to fade as in the corresponding period last year IIP was at 5.2%

Country's industrial production may remain below 4% in November, a Citigroup report says adding that the base effect is likely to fade as in the corresponding period last year IIP was at 5.2%.

Industrial output grew at five-year high rate of 9.8% in October on impressive performance of capital and consumer goods.

The latest IIP figure marks a significant rebound from 3.84% growth recorded in September 2015 and a contraction of 2.7% in October last year.

"The numbers had a boost from favourable base effect but signs of a gradual recovery are definitely present as average IIP growth in the last three months (6.6%) is much higher than average growth in IIP (3.6%) over the six months before that", Citigroup said in a research note.
 

The base effect was largely due to the shift in festival season between 2014 and 2015.

In 2014, both Dussehra and Diwali were in the month of October, leading to fewer working days and a lower IIP number. However, in 2015, Dussehra was in October and Diwali was in November.

"The festive season has been pushed back leading to higher pre-festival stocking in October and relatively more working days in October as Diwali was in November", the Citigroup report said.

The global brokerage noted that going forward, in November, the base effect is likely to fade as last year IIP growth in November had jumped to 5.2%.

Moreover, auto production has declined from 15% year-on-year in October to (-) 8.6% in November and electricity production has also fallen.

"On the back of this, IIP is likely to normalise towards sub-4% in November. However, beyond the monthly volatility, we continue to see modest improvement in IIP trends and remain confident of our view that industrial growth in GDP is likely to rise to around 7% in this fiscal from about 6% last fiscal", the report added.

The previous high in the index of industrial production (IIP) was in October 2010 at 11.36%.

As per data released by the Central Statistics Office (CSO), the manufacturing sector, a key indicator of economic activity, grew 10.6% year-on-year in October.