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Published on 14/05/2019 5:08:35 PM | Source: Choice Broking Pvt Ltd

Sluggishness in demand scenario - Choice Broking

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‘Sluggishness in demand scenario’

* IIP contracted for the first time in 21 months. IIP reported at (-)0.1% in Mar v/s 0.1% in Feb

* Manufacturing sector (-0.4% in Mar) witnessed contraction for the second consecutive month. 12 out of 23 industry group witnessed negative growth during the month.

* Consumer durables and non-durables sectors indicated slowdown in broad based demand.

* Output of capital goods and infrastructure sector slowed down due to contraction in public spending.

* CPI inflation rose to 6-month high at 2.9% in April.

* CFPI rose to 9-month high at 1.1% in Mar v/s 0.3% in Feb

* Given the prevailing slowdown in economy, easing core inflation provides some room for MPC to cut rate further.

 

IIP contracts by 0.1% in Mar

Adding to woes about slowdown in economy, Indian Industrial Production (IIP) contracted first time in 21-months by (-)0.1% in March v/s 0.1% in February. Consumer durables and non-durables sectors recorded contraction indicating sluggishness in broad based demand. Capital goods sector, which indicates investment in the economy, contracted for the third consecutive month (-8.7% in Mar v/s -8.9% in Feb) and growth in infrastructure sector also slowed down (6.4% in Mar) due to decline in govt spending amid worries over fiscal position with the approaching year end. On production basis, manufacturing output contracted by (-)0.4% in Mar (-0.4% in Feb & 5.7% in Mar’2018) and 12 out of 23 industry group reported negative growth during the month under review. Mining sector grew by 0.8% in Mar (2.2% in Feb) driven by contraction in crude oil production and electricity sector by 2.2% (1.3% in Feb). During FY19, factory output grew by 3.6% as compared to 4.4% in FY18.

 

CPI inflation records at 2.9% in Apr

CPI inflation rose to 6-month high at 2.9% in Apr v/s 2.86% in Mar as the prices of food articles revived. Consumer Food Price Index (CFPI), which represents 47.25% weight in the index, rose to 9-month high at 1.1% in the reported month v/s 0.3% in Feb due to higher price of cereals, milk, protein items and revival in vegetables prices. Meanwhile, the price of fruits (-4.9% in Apr), and pulses (-0.9% in Apr) continue to remain in deflationary trajectory. Fuel inflation remained low at 2.9% in Apr v/s 2.3% in Mar due to higher base effect. Meanwhile, core inflation or inflation excluding food and oil reduced to 18-month low of 4.6% in Apr (5.3% in Mar) indicating decline in product prices. Inflation in rural reported at 1.9% in Apr (1.8% in Mar) and in urban area at 4.2% (4.1% in Mar).

 

Outlook

Weakening growth of consumer durables and non-durables sectors over the past few months showed losing momentum in the broad based demand. This slowdown can be primarily attributed to NBFCs crises and partially to decline in govt spending. Capital goods and infrastructure sectors slowed down owing to the concern over govt’s fiscal position at the year end and lack of private investments in the respective sectors due to lack of visibility of strong demand. Manufacturing/services PMI reduced to 51.8/ 51 in April v/s 52.6/52 in Mar.

While food inflation is expected to revive over the next few months, headline inflation is likely to remain under RBI’s target limit. Possibility of abrupt reversal of vegetables prices and pulses prices can be remained key upside risks to food inflation. Meanwhile range bound movement of crude oil prices and stable rupee is expected to keep fuel inflation under check. Given the prevailing slowdown in economy, easing core inflation provides some room to MPC for rate cut.

 

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