While China is slowing down, India seems to be doing reasonably well as far as industrial performance of the country is concerned. Growth in India’s industrial output measured by the movement of Index of Industrial Production (IIP) has come in at 4.2% in July 2015 as against the growth of 0.9% recorded in July 2014. With this, IIP has managed to stay in positive for 9th consecutive month now, after recording a fall of 2.7% in October 2014.

Revival in manufacturing, which forms about 75% of the index, has helped the industry beat analysts’ estimates in July. Manufacturing industries collectively grew at 4.7% whereas electricity and allied sectors recorded an uptick of 3.5%. At 1.3%, growth in the mining output may look mediocre, nonetheless, it came higher than -0.5% recorded in June 2015 and 0.09% witnessed in July 2014. IIP for the month of June 2015 has been revised sharply upwards from 3.8% to 4.4%.
 

Is Industrial Performance Of India Reviving?

Data as on September 11, 2015
(Source: MOSPI, PersonalFN Research)  

Out of 22 manufacturing industries, 12 have recorded positive growth among which, growth in furniture manufacturing jumped massively at 69.3%. Apart from that, wearing apparel (21.7%) and electrical machinery (20.9%) grew briskly in July 2015. Output in capital goods sector sprang up sharply 10.6%. That in the basic goods segment too grew at a pace 5.2%. These are construed to be positives for the Indian economy. Performance of consumer durable segment has been satisfactory as the growth has aggregated at about 11.4% for the constituting industries. However, sharp slide in consumer non-durables (-4.6%) remains a worry.

Are better days ahead for Indian Manufacturing Industries?

India will be affected by what happens in China. Monetary policy stance of Fed in the U.S. will also affect India. To discuss issues at hand, Prime Minister recently met industry leaders and heard them out. He appealed industry chiefs to take more risks and rev up investments in new projects and capacity additions. Confederation of Indian Industry (CII), Associated Chambers of Commerce & Industry of India (Assocham) and Federation of Indian Chambers of Commerce and Industry (FICCI) made various recommendations to the Government which include; shielding Indian industry from dumping of Chinese goods by making adjustments in anti-dumping duties, speeding up project clearances, incentivising equity investments in India and monetary easing among others.

But there are challenges…

Exports came about 6.4% lower on Y-o-Y basis in the Q1 of FY 2015-16. Deposit growth and credit growth aggregated at 11.4% and 9.3% for the quarter ended on June 30, 2015. This suggests that, demand for credit at prevailing interest rates is low. During the first quarter of last fiscal credit growth had aggregated at 13.3%. This shows that Indian economy is recovering at snail's pace.

Survey done by FICCI reveals that, just about 25% of the manufacturers have planned to expand their capacities in next 6 months. This suggests that, most of the manufacturers expect demand to remain soft and thus are worried about investing in capacity additions at this point of time.

What to expect?

It is believed that, retail inflation for the month of August 2015 may also be benign which has given rise to hopes of a rate cut. Now, it remains to be seen if RBI cuts policy rates at the fourth bi-monthly monetary policy review scheduled on September 29, 2015.

Besides falling inflation, if something that may positively affect the decision of RBI on policy rates, it’s softer stance of banks on adjusting their lending rates. A few banks have recently re-adjusted their base rates; thereby showing preparedness to pass on benefits of previous rate cuts to borrowers. As a result, the pressure on RBI to incentivise growth by according lower policy rates may mount.

Having said this, a few factors such as deficit in monsoon, rupee volatility and uncertainty about monetary policy stance of central banks of advanced economy among others (especially that of the U.S. Federal Reserve); may discourage RBI from conceding rate cuts at this juncture. After all, RBI has to achieve inflation targets and can’t afford to move rates based on today’s data.

It remains to be seen how RBI sees trends in inflation and growth emerging. If it expects, retail inflation to rise in future, it may refrain from slashing rates, despite of moderating trend in inflation observed so far. Rupee has been strong until now as compared to other emerging market currencies against the U.S. dollar. However, RBI would closely track stance of Fed on policy rates in the U.S.

PersonalFN is of the view that, speculating on any economic event and basing your investment decisions on it, may prove to be harmful to your portfolio. Therefore, PersonalFN believes, you should keep a track of economic indicators and other events only with a view of assessing their impact on your portfolio. Before, you invest, please make sure you have taken into account your financial goals, risk appetite and time horizon. Asset allocation which is consistent with your long term financial goals, should guide your investments.

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