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Better-than-expected second quarter earnings by IT bellweather Infosys more than offset the disappointing IIP (Index of Industrial Production) growth numbers to propel a 422-point rally in the Sensex, which closed at more than one month high of 16,958.39 on Wednesday.
The surprise 9.7 per cent rise in Infosys' second quarter net profit and a strong earnings outlook for the entire fiscal on the back of a weakening rupee — besides positive global cues based on increased optimism over the European debt crisis being tided over — led investors to shrug off the latest IIP data from the Central Statistics Office.
Overall, industrial output grew 4.1 per cent year-on-year in August 2011, making it a second successive month of poor growth.
On a low base
The finer point is that this was on an already low base growth rate of 4.5 per cent for August 2010 — whereas the 3.8 per cent figure for July came on a higher base of 10 per cent in the same month of 2011 — did not really capture investors' attention.
The Finance Minister, Mr Pranab Mukherjee, in fact, expressed some disappointment over the IIP data, noting that it may impact India's second quarter GDP growth.
“It (IIP) is not encouraging. It is a bit disappointing and it may affect the GDP of second quarter. To what extent it (slowdown in IIP) would affect, it would be premature to make any assessment,” he told newspersons here.
The Economic Affairs Secretary, Mr R. Gopalan, said that the slowdown in the IIP numbers was a matter of concern but expressed confidence that the figures would improve in the second half of the current fiscal.
“It is a cause of concern. But as we go along, if you see the previous year, always the second half IIP numbers have been good,” Mr Gopalan said.
The cumulative industrial output growth during the first five months of this fiscal works out to 5.6 per cent as against 8.7 per cent for April-August 2010-11
Sector-wise break-up
While manufacturing recorded 4.5 per cent growth in August 2011, lower than 4.7 per cent in same month last year, the mining output declined by 3.4 per cent in August this year as against a growth of 5.9 per cent in August 2010.
Electricity output grew 9.5 per cent in August 2011 as against 1 per cent growth in the same month last year.
The indicators of corporate demand — intermediate goods and capital goods — were disappointing in August 2011. While capital goods recorded growth of 3.9 per cent (4.7 per cent), intermediate goods growth fell sharply to 1.3 per cent (5.8 per cent).
While consumer goods grew 3.7 per cent growth in August 2011 (4.6 per cent in August 2010), basic goods registered 5.4 per cent growth (3.8 per cent).
Consumer durables grew 4.6 per cent (8.1 per cent), and consumer non-durables, 2.9 per cent (1.8 per cent).
The tepid industrial output growth in July and August is attributed largely to the subdued economic activity in the country following the 12 rate hikes by the Reserve Bank of India (RBI) in the last 18 months as part of anti-inflationary monetary stance.
The current majority view among economists is that the central bank would go in for another 25 basis point hike on October 25 as inflation continues to persist at near double-digit levels.
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