Lower output signals lows?

Output typically troughs two to four months before markets indicating an approaching bottom.

Indian stocks may “bottom” in the middle of the year after the slump in industrial production ends, JPMorgan Chase & Co. said. Output typically troughs two to four months before India’s equity markets, JPMorgan analysts led by Bharat Iyer wrote in a report. Production may drop 3 percent over March and April before recovering, they said.

The Bombay Stock Exchange Sensitive Index has dropped 7.1 percent this year, set for its fifth quarterly decline, as the global financial crisis and recession weighed on the corporate earnings outlook. In the last economic cycle, industrial production started recovering in May 2001 while equity markets reached a bottom in September that year, JPMorgan said.

“The above analysis would suggest that the equity markets could bottom out over June to July,” the analysts wrote. “This would also be a decisive phase for the equity markets as there should be clarity by then on the results of the national elections and the progress of the monsoon and its seasonal impact on the economy.”

The Sensex fell 0.4 percent to 8,966.68 at the close, the first drop in three days.

Output at factories, utilities and mines dropped 0.5 percent in January from a year earlier, declining for the third time in four months, the Central Statistical Organisation said on March 12. Economists had expected a 0.9 percent contraction.

Prime Minister Manmohan Singh has reduced taxes on consumer products and the central bank slashed interest rates to a record low to revive an economy that some analysts fear may slow further as elections in April and May stymie policy making in the world’s biggest democracy.

The author is a Bloomberg News columnist. The opinions expressed are his own