Indian Economy Outlook and Comments on IIP number by Fairwealth Research

Indian Economy Outlook and Comments on IIP number by Fairwealth ResearchGrowth in Industraila Production for Oct'10 came in at 10.8% beating consensus expectation (8.5%).This was the fastest grwoth in last three months. Spring back in IIP number can be largely attributed to manufacturing output which grew 11.3%.This Idustrial production growth that peaked to 15.1%in July 2010, slipped to 4.4% in the month of Sep' 2010. This cumulative growth for period Apr-Oct'10 stood at 10.3% as against 6.9% for the corresponding period previous year.

Manufacturing Output, that weighs 80% in the IIP index, grew at 11.3% pulling up the overall industrial production growth. The Electricity generation grew at 8.8% in Oct'10 as against 4% in Oct'09 and Mining grew at 6.5% in Oct'10 compared to 9.1% in Oct'09 A significant growth of 22% in Capital Goods shows that the Capex cycle is on track. The strong growth in Capital goods is due to high growth in the production of Off shore platforms, Ship building and repair, Electrical control panels, Laboratory & scientific instruments, Electric generators and Turbines.

The Consumer durables also posted a strong growth of 31%, up from 18.3% in the same month previous year. This growth can be attributed to a greater production of passenger cars, Motorcycles, Scooter & mopeds, Alarm time pieces and T. V. sales. The consumer non durables grew at 0.1%. The overall growth in consumer goods stood at 9.6% in the Oct'10.

Core Infrastructure and exports numbers already suggested a better Industrial growth in the month of Oct'2010 Core infrastructure sectors which comprise 26.7% in the IIP and are a leading indicator for the industrial growth, grew at a seven- month high of 7.1%. Growth in key infrastructure segments in October 2010 was on account of rise in cement production, crude oil and electricity generation which rose by 16.8%, 13.7% and 8.4% respectively. Besides this, good exports numbers also pointed towards an upward movement in industrial growth.

Outlook

Robust growth in Industrial Output along with strong GDP numbers for Q2FY11 and rising exports numbers strengthens the prospects of Indian economy. However, this may further stoke up inflation which has remained a cause of concern for RBI. Considering the ongoing tight liquidity in the system, the RBI may not hike the key policy rates in the upcoming mid-quarter monetary policy review which is due to be announced on December 16, 2010.