Key highlights for IIP growth data of January 2012

• The IIP growth for January 2012 was placed at 6.8% (y-o-y), which came in considerably higher than consensus analyst expectation of around 2%.
• The Mining, Manufacturing, and Electricity segments recorded y-o-y growth rates of -2.7%, 8.5% and 3.2% respectively
• The IIP data for December 2011 was revised higher to show a growth of 2.5% (y-o-y), compared to earlier estimate of 1.8% (y-o-y) reading
• IIP for January 2012 saw 4.4% m-o-m growth tracking significant uptick in the consumer non-durables segment, primarily food products
• The Mining, Manufacturing and Electricity segments noted m-o-m growth rate in January at 0.4%, 5.3% and 0.9% respectively
• The activity under Capital Goods turned negative at 1.5% (y-o-y) in January 2012, as a result of which the IIP Ex Capital Goods was seen still higher at 8.0% (y-o-y)
• The Eight Core Industries Index grew by a marginal 0.54% (y-o-y) in January 2012, with m-o-m upside seen under five out of eight industries.
• The 3-month moving average in IIP growth rate (y-o-y) improved sharply during January 2012 to 5.1% from 1.2% seen in December 2011
• The current release on IIP is in line with sharp upside seen in the PMI data for Manufacturing for the month of January 2012
• The PMI data has shown slight slip in the manufacturing activity for February 2012, but the domestic order book remains resilient, signally buoyancy in activity going forward
• The February 2012 reading on IIP growth (y-o-y) is expected to show resilience, significantly owing to a supporting base
• The surprise mid-policy move to cut CRR by 75bps has triggered hopes of the RBI advancing the much awaited cut in the Repo Rate to the upcoming Mid-Quarter Review. Such a move, though, remains greatly dependent on the inflation data. Moreover, with the current surprise uptick in IIP, we expect the RBI to hold any moves on LAF Repo Rate at the current juncture. Nonetheless, we continue to expect the RBI to reduce LAF Repo Rate by 150bps over the next fiscal.

Thanks,

Gaurav Agarwal

Head Dealer

DENIP Consultants Pvt Ltd