Expert views: Jan industrial output up 2.4%, Feb CPI accelerates

Most analysts expect RBI to cut rates but say there is limited room due to inflation

India's industrial output grew at a faster-than-expected 2.4% in January from a year earlier, government data showed on Tuesday.

Revised data for December showed production at factories, mines and utilities shrank 0.5% compared with 0.6% contraction earlier.

Manufacturing, which constitutes about 76% of industrial production, grew 2.7% from a year earlier.

Meanwhile, annual consumer price inflation accelerated to 10.91% in February from the previous month, government data showed.

Consumer prices rose an annual 10.79% in January.

Commentary

Adi Godrej, President, CII

“While some signs of revival of industrial activity are indicated, it is too early to assume that the slowdown has bottomed out and green shoots of recovery are around the corner. If we factor in the base effect, the performance of industry is still below potential. But we hope that the growth in industry, though modest, would signal a beginning of a turnaround and we would expect much better figures, going forward.” 
 
“The demand of consumer goods, particularly that of consumer non-durables, continues to be a cause for concern. CII hopes that the RBI would respond to the fiscal consolidation measures announced in the budget and reduce policy rates by at least 50 basis points in its forthcoming monetary policy review.”

Radhika Rao, economist, DBS, Singapore

"Pleasant upside surprise in January headline IIP, lifted by higher consumer goods output, mainly non-durables. The data corroborates broad expectations that the consumption demand is showing signs of bottoming out, though the third consecutive monthly decline in capital goods production does not bode well for investment sentiments.

"While seen in isolation, the IIP release could temper expectations of a rate cut next week, though we expect policymakers to allocate low weightage for this release given its anecdotal volatility relative to the WPI numbers due later this week.

"Firm CPI numbers, meanwhile, raises upside risks for the WPI inflation number especially on food costs. We still maintain that a sub-6.8% print will keep rate cut expectations alive, though odds for an aggressive 50 bps cut have sharply reduced."

Siddhartha Sanyal, India economist, Barclays Capital, Mumbai

"I don't think this should be taken as a trend but is just a part of one or two sporadic jumps. In general our expectation is low single-digit IIP for the year. One cannot ignore the broader trends like a 4.5% GDP print in December quarter, the huge fiscal austerity drive and a likely downside surprise to the RBI's stated inflation projection for March end.

"We continue to expect the RBI to cut rates in March but the stance will be cautious due to sticky inflation and high current account deficit."

Shakti Satapathy, fixed income strategist, A K Capital, Mumbai

"The current IIP number is primarily a reflection of favourable manufacturing base and good show by the electricity sector. Gradual improvement in the intermediate goods somehow indicates the sentiment revival. Further the higher February CPI remains a worry and would be closely looked at by the central bank for forthcoming rate cut decisions. However, we believe the March 19 policy meet would be positively driven by the current budget guidelines and falling WPI trends."

Rupa Rege Nitsure, chief economist, Bank of Baroda, Mumbai

"IIP data for January shows definite improvement in industrial production on the back of some improvement in manufacturing activity, especially in electrical machinery production, chemical products and consumer non-durables. However, it's too early to comment on the sustainability of this trend. I still expect the RBI to cut policy rates by 25 basis points on Tuesday.

"Though CPI is in line with expectation, the RBI will go by the behaviour of the core inflation, which is currently closer to 4%."

A Prasanna, economist, ICICI Securities Primary Dealership, Mumbai

"The January IIP is a positive news but the high frequency numbers like the auto numbers are pretty bad. I expect the Feb IIP to be lower as there is one less working day than previous year. There is a downside risk to the CSO's GDP growth projection for this fiscal year given the government's spending cuts and the IIP trend.

"The CPI (consumer price index) is also high and the divergence between CPI and WPI (wholesale price index) gives limited room to RBI to cut rates. But since WPI is expected to be below 7% and growth is weak, we expect the RBI to cut rates in March."

Shubhada Rao, Chief economist, YES Bank, Mumbai

"It's a tale of two diverse numbers. IIP has come in much higher than anticipated which is a positive news, but is a short-lived relief as the CPI came in significantly higher and the concern on food continues.

"Food inflation has gone up 0.78% month-on-month and more importantly, the RBI has been tracking the core CPI, which too has moved up 0.61% after a brief respite. Core CPI is a concern.

"On IIP, our full year forecast is 1.5-2.0%, but the larger focus in terms of the monetary policy takeaway would be CPI. It would weigh on policy concerns. However, as of now we retain our call of 25 basis points of rate cut on Tuesday."

Anjali Verma, economist at Phillipcapital, Mumbai

"Consumer price inflation remains a concern. Industrial output is better mainly on improvement in manufacturing. Some pick up in activity is there after the Chidambaram announcements. My expectation is IIP growth will average 1.5-2%for the fiscal year.

"I still maintain a 25 basis point cut in the repo rate on March 19. Now we are looking to the WPI numbers. I am expecting slightly higher than consensus headline at 6.7%."