Dec 122012

Surprise 8.2% rise in factory output

“Let’s see what the next four months bring us. Investments are taking place, capacity is being created and consumption is happening in consumer durables and non-durables,” the finance minister said.

The author has posted comments on this articleTNN | Dec 13, 2012, 12.40AM IST

NEW DELHI: A sharp rebound in the manufacturing sector pushed the country industrial output growth to its highest in more than a year in October, indicating that the slowdown may have bottomed out.

Data released by the Central Statistics Office (CSO) on Wednesday showed industrial output rose unexpectedly by 8.2% in October compared to a decline of 5% in the same month a year earlier. The CSO revised the September data to show a decline of 0.7% from the previous reading of a 0.4% fall.

Economists said the sudden surge was largely due to a statistical base effect and some improvement in segments such as capital goods, consumer durables and non-durables.

Policy makers cheered the robust factory data with finance minister P Chidambaram saying it indicated the emergence of green shoots of economic recovery. “I am very encouraged by the indications of the green shoots in economy in terms of production. IIP figures are very encouraging,” he told reporters.

“Let’s see what the next four months bring us. Investments are taking place, capacity is being created and consumption is happening in consumer durables and non-durables,” the finance minister said, adding that growth of 7.5% in capital goods output “is very encouraging”.

But economists said it was too early to predict whether the October level of growth will be sustained. “As the current industrial slowdown is both well-entrenched and broad-based, it will take a while for industrial growth to recover,” ratings agency Crisil said in a note.

“Therefore, we expect industrial output growth to remain at muted levels during the remaining months of this fiscal year,” it added.

Industrial output data has remained volatile for several months, particularly the capital goods segment, making it difficult to spot a trend. The industrial sector has also been hit hard by high interest rates, input costs and slowdown in demand.

The manufacturing sector, which accounts for nearly 75% of the index of industrial production, rose 9.6% in October compared to a 6% decline in the same year-ago period. The improvement in the manufacturing sector is in line with other data such as the Purchasing Managers’ Index which has shown a rebound in the segment thanks to new orders.

The data showed that consumer goods, durables and non-durables also staged a smart rebound with all the segments posting double-digit expansion. The capital goods sector, which is a key gauge of economic activity, rose 7.5% in October compared to a fall of 26.5% in the year-ago period. This is the first time since April that the data for this segment has moved to positive territory.

The factory output data to some extent dashes hopes of an immediate interest rate cut as the Reserve Bank of India (RBI) would want to wait and see whether this is a sustained recovery. Retail inflation data also released on Wednesday showed inflation as measured by the consumer price index still hovering around double digits on the back of stubbornly high food prices.

Several economists expect growth to pick up in early 2013 as the impact of economic reforms and easy monetary policy kick in.

Dec 122012

The author has posted comments on this articlePTI | Dec 12, 2012, 07.32PM IST

MUMBAI: In listless trading, the rupee fell back by six paise to end at 54.32 amid fresh dollar demand from importers ahead of the conclusion of US Fed’s two-day meeting where it is widely expected to expand economic stimulus programme.

Around USD 175 million capital flows in Indian stocks, however, capped the rupee slide as importers, especially oil companies, stepped up dollar purchases, forex dealers said.

At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed slightly lower at 54.29 from overnight close of 54.26. It later moved in a narrow 19-paise range of 54.15 and 54.34 before concluding at 54.32, showing a fall of six paise or 0.11 per cent.

Yesterday, it had risen by 22 paise or 0.40 per cent. Forex dealers said the rupee also tracked the Indian benchmark Sensex’s movement which erased gains after IIP data and retail-level inflation numbers came out. The index closed down by 31.88 points or 0.16 per cent.

As per provisional data, FIIs pumped in Rs 950 crore (USD 175 million approx) in stocks today.

The dollar index was down by 0.10 per cent against a basket of six major currencies amid widespread expectations that the US Federal Reserve policy makers will decide to unleash further stimulus. The New York crude oil was trading above USD 86 a barrel in Europe today.

Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: “The combined CPI numbers came in at 9.9 per cent which took away the sheen of sharp rise in October Industrial production numbers which beat the street estimates recording growth of 8.2 per cent.”

The outcome of the two day FOMC meet will be closely watched by the markets, said Abhishek Goenka, Founder & CEO, India Forex Advisors.

The US Fed concludes a two-day meeting today and the US central bank will announce its interest rate decision, followed by forecasts on economic growth, unemployment and inflation.

Forex experts said Fed will expand economic stimulus by announcing USD 40-45 billion in monthly treasury buys in addition to the programme to buy USD 40 billion in mortgage bonds each month.

The premium for the forward dollar also declined on fresh receipts by exporters.

The benchmark six-month forward dollar premium payable in May eased to 168-1/2-170-1/2 paise from previous close of 170-172 paise.

Far-forward contracts maturing in November moved down to 316-318 paise from 318-1/2-320-1/2 paise.

The RBI has fixed the reference rate for the US dollar at 54.2725 and for euro at 70.5470.

The rupee turned negative against the pound sterling to 87.69 from Tuesday’s close of 87.25 and declined further to 70.75 per euro from 70.40.

It, however, recovered against the Japanese yen to 65.59 per 100 yen from previous close of 65.81.