MARCH IIP -3.50 % v/s 4.10 % :IS THIS WE CALL THE GROWTH ????

IIP DATA COMES AS A SHOCK !!!

MARCH 2012 Index of Industrial Production (IIP) which is declared by Ministry of Statistics & Programme Implementation came at SHOCKING -3.50 % which is complied by Central Statistic Office. The index is a composite indicator that measures the short term changes in the volumes of the industrial production.

Three sectors that constitute the index are Mining, Manufacturing and Electricity. The monthly growth rates of these three sectors for the month are for Mining (-)1.3%, Manufacturing (-)4.40% and for Electricity 2.70 %, the ministry added that as per “use – Based “ classification there has been negative growth in capital goods (-21.3%) and intermediate goods (-2.1 %) and positive growth has been achieved in basic goods (1.1%), consumer durables (0.2%) and consumer non-durables (1.0%).

The contraction was driven by particularly poor performance of the manufacturing sector, in line with weak exports that month. It is believed that April saw a turnaround, but until this is confirmed, sentiment will be weak. The data increases the odds of another rate cut, is negative for the INR, and should push INR OIS rates and bond yields down. IIP, will change the RBI (Reserve Bank of India) policy stance. RBI will not cut rates till July, but may have to start after that. Expect another 50-75 basis points rate cut in this year

BACKGROUND

• India's economy probably expanded 6.9 % in the 2011 - 12 fiscal year that ended in March, its slowest pace in three years.
• The RBI, which cut interest rates in April for the first time in three years, has forecast growth at 7.3 % in 2012 - 13.
• Expansion in manufacturing sector picked up pace in April, supported by bulging order books, but slower output growth and increasing price pressures dampened sentiment, a business survey showed.
• Growth in the services sector accelerated a touch in April thanks to a rise in new business, and optimism hit its highest level since June 2011, a survey showed last week.
• Headline inflation slowed marginally to 6.89 % in March helped by a softening in prices of manufactured goods, even as food inflation shot up. Analysts expect April inflation at 6.70 %.
• The Reserve Bank of India slashed its main lending rate - the Repo rate - by a sharper-than-expected 50 basis points in April to help revive growth.