Leading brokerage house Nomura India today played down the marginal 0.4% contraction in the September factory output numbers, saying the industrial cycle has bottomed out.
Blaming the decline in output to a larger-than-expected dip in capital goods and a major weakness in consumer goods segments, Nomura said, "On a three-month moving average basis, industrial output growth rose to 0.5% year-on-year in September from a trough of -0.7% in May.
"Therefore, notwithstanding the monthly volatility, the industrial cycle appears to be bottoming out, though there is no clear recovery yet due to weak exports, lacklustre investments, amidst signs of moderation in consumption demand," Nomura India Chief Economist Sonal Varma said in a note today.
The government earlier in the day said industrial output growth contracted by 0.4% year-on-year in September, lower than August's 2.3% expansion and sharply below expectations of over 2.5%.
Varma said the ongoing rebound in imports suggests that supply-side constraints and high cost of domestic production may be leading to greater import substitution, dragging on industrial production and worsening trade deficit. "As such, the continued sticky nature of inflation remains the pre-dominant concern."