IIP growth for Oct may rise to 5.8%, predicts Ind-Ra
10 Dec 2015
India Coal Market Watch
December 9: The next one week is expected to be economic date heavy. Industrial production growth for October is estimated to rise to 5.8%, the second-best month in FY16, while the consumer price inflation for November is estimated at 5.2%, the highest in 5 months, and the wholesale price inflation is seen at -2.5%, the highest in 5 months, says India Ratings and Research (Ind-Ra).
Ind-Ra believes that after the index of industrial production (IIP) attained its best growth since the last 17 quarters in 2QFY16, it will expand further in October 2015. Ind-Ra forecasts October 2015 IIP growth to be 5.8% (September 2015: 3.6%). At this level it will be the second best monthly IIP growth in FY16 till now (August 2015: 6.3%). The growth momentum is likely to benefit from the base effect (October 2014 IIP contracted by 2.7% and consumer durables output contracted by a whopping 35.2%) and continued inventory build-up in view of the festive season.
The drivers of IIP in October is likely to be strong performance of the electricity sector (8.8%), consumer durables and robust capital goods output. The budding investment recovery (as witnessed in 2QFY16 GDP growth) is likely to continue and would support capital goods production.
However, mining sector performance is likely to remain a drag (April- September FY16:1.5%). The eight core sectors (38% weightage on IIP) for October grew by 3.18% which was unchanged compared to the previous month due to fall in steel, natural gas and crude oil output.
Ind-Ra believes that industrial recovery is still in its early stages and a full blown recovery would require more policy support.
On the price index side, Ind-Ra believes that inflation has been bottoming out. The consumer and wholesale price index based inflation has been inching up since August 2015 and September 2015 respectively. Ind-Ra expects this trend to continue in November as well and forecasts CPI inflation to be 5.2% (October 2015: 5%) and deflation in WPI to come down further to 2.5% (October 2015: 3.8%).