IIP: Negative surprise for foreign investors

Analysts now bet on rate cuts.

Our Bureau

Mumbai, Dec. 12 Indian equities reacted sharply to negative global cues and the poor Index of Industrial Production (IIP) figures for October 2008.

The Sensex fell more than 350 points intraday on Tuesday (from its previous close), though it recovered towards the close of trading aided by substantial gains in some of the index heavyweights. The IIP figure for October fell by 0.4 per cent, its growth rate entering the negative territory for the first time in 15 years. It had risen 12 per cent in October 2007.

"The markets opened sharply lower on the back of weak global cues and the sentiment got even more sour by dismal IIP data at noon. However a smart recovery was seen in second half of the trading," said a report by Ambit Capital.

"This is the first contraction since the index began in FY-94. On a cumulative basis, growth during April-October was 4.1 per cent versus 9.9 per cent during the same period last year," said Citigroup Global Markets report on India.

Package

The report had a discouraging take on India's revival steps and the prospects of more disappointing numbers.

"While the Government's fiscal stimulus package and monetary measures are positive, they are unlikely to reverse the slowdown in growth, and downside risk to these numbers appear to be increasing," the report added.

Goldman Sachs said they were surprised that the growth had such dismal figures.

"Although we were expecting IIP to be low, we did not anticipate a negative print for October. We, therefore, expect overall activity to be sharply lower in the second half of FY-09, after growing by 7.8 per cent in the first half. Our estimate for GDP growth remains below consensus at 6.7 per cent year-on-year for FY-09 with further downside risks, and 5.8 per cent for FY-10," said the report by Goldman Sachs.

Many people could find the Goldman Sachs report's view on rate cuts as positive.

"We continue to expect the Reserve Bank of India to ease both the repo and reverse repo rates by 150 and 100 basis points respectively by end-March 2009," it added.

Negative Sectors

On a sectoral basis, 10 of the 17 industry groups posted negative growth in October with leather products (-18.1 per cent), wood and wood products (-4.4 per cent), cotton textiles (-9.6 per cent) and transport equipment (-6.1 per cent) posting declines. However, seven industry groups including rubber, plastic production, basic metals, beverages and tobacco products stayed in positive territory.