POSITIVE APRIL IIP – ARRIVAL OF THE GREEN SHOOTS!

By | June 14, 2009 4:54 pm

As expected by all, the much awaited improvement finally came in! March 09’ might well have been the last of the contraction that we have seen. April IIP numbers does indicate a cause for some celebration.

April IIP was in the positive at 1.4% v/s the contraction of 2.3% in March. Electricity continued to grow and in April it was up 7.1% (YoY) despite a fall in hydel power. Mining was up 3.8%, manufacturing output just about managed to nudge itself into the positive territory at 0.7%. Capital goods output was down 1.3% and that seems a kind of an anomaly, as there is growth all around. Maybe this is a blip and would correct itself in the coming month.

Now a bounce back is expected in the months to come in fiscal 2009-2010. Industrial production in the first month of 2009-10 has begun on a positive note. The effect of the fiscal stimulus on the domestic economy will be seen in the coming IIP reports. The increased benefits of NREGS and full implementation of Sixth Pay Commission by states will also be felt in coming months. With inventory now under control and Govt spending also expected to step up further, looks like the turnaround is here to stay.

This means that we are through with the contraction. We are basing this on a couple of reasons. One is that infrastructure index has done quite well for April. Secondly, from January onwards we have been seeing an upturn in demand in a few sectors and over a period of time, it is likely that this improvement in demand will spread to other sectors also. We also have to remember that elections have just finished and that has made the system quite cash flush and to a large extent, the rural demand, which are talking about is also a reflection of this increased spread during the elections.

There is now no doubt that the companies have worked through most of the piled up inventories. So possibly we will now see stabilization in output numbers in this quarter and from next quarter. This would mean a more sustained positive IIP.

Yet for a sustained recovery our exports need to perk up. Exports fell by a whopping 33% in April 09’, the most in at least 14 years. Revival of export demand and growth in consumption is expected only after the second half of FY10. Until then, while industrial production may hover in the positive territory, a decisive upturn would take some more time.

It is clear that the full effect of the fiscal stimulus is now slowly but surely percolating into the system and in the coming months, we will see more of this. And this also means that we do not need a broad based stimulus from the Govt but we now need a more sector specific stimulus. For now, just enjoy the first signs of a recovery. The green shoots are finally here!

Category: Daily

About Bramesh

Bramesh Bhandari has been actively trading the Indian Stock Markets since over 15+ Years. His primary strategies are his interpretations and applications of Gann And Astro Methodologies developed over the past decade.

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