IIP number analysis for february 2011

Industrial growth for the month of February 2011 has dipped to 3.6 per cent. It is the third consecutive month with low single digit IIP numbers. It is increasing the concerns among the economist for the economical growth of India in near term. India has seen slowness in its growth in last few months and with this February data coming at lower than expected level is triggering an alarm among economist and investors.

The only positive about this report is the fact that 15 out of 17 industry group recorded positive growth. In the month fed 2011, the manufacturing also slipped to 3.5 per cent from 16.1 per cent in the same period a year ago. Stock market in India has been rising consistently over last few weeks. With low IIP numbers and inflation still roaming in the higher zone, investors should be cautious in their approach.

Markets are falling right now after a series of highs in the last two weeks. The cumulative growth for the period of April – Feb 2010 was at 7.8 per cent and it is also expected to come down this year. There are still no changes in fundamental short term economical growth from the month of 2011. But stock markets have gone up in a last weeks which is making it more susceptible for a sharp correction.

Even the last rally wasn’t a very confident one and it was often associated with low volumes. If the investment declines further, maintaining a robust economical growth is going to be a huge challenge for the government. Most of the analysts are reducing the GDP rate of India. Most of the experts believe Indian GDP rate to be around 8.2-8.3 percent for FY2011.

Though, there is counter argument that the reason India is witnessing a slowdown in growth this year because the country had seen a huge growth last year. But even with that, high inflation, volatile crude and unstable geo-political scenario is adding to the chaos.

Reserve Bank of India is expected to increase the interest rate to control the inflation. It will also have an adverse effect on liquidity in the market. The lower IIP number is influenced by lower capital goods output. This is the third consecutive month with lower capital good output.

RBI has said in its mid-March review that rising interest rates have failed to slow down consumption yet, as evident from the 26.2% growth in automobile sales in FY11 and high growth in consumer durables output. The production of consumer goods rose 11.1% in February-—consumer durables grew 23.4% while output of consumer non-durables was up 6.1%. “Even as industrial production continues to be volatile, other indicators, such as the latest purchasing managers’ index, direct and indirect tax collections, merchandise exports and bank credit, suggest that the growth momentum persists,”.

But if the interest rates continue to rise which is expected to happen. It will severely impact the investment environment in Indian stock market. And if investment is going down then it will severely impact growth.