January IIP: Expert Views

India's industrial output rose by a much faster-than-expected 6.8 per cent in January compared with a year earlier, government data showed on Monday.

ASHISH VAIDYA, EXECUTIVE DIRECTOR AND HEAD OF INTEREST RATES, UBS, MUMBAI

"A rate cut in March is certainly out of the question due to the latest industrial output number and the high powered money injected through the cash reserve ratio cut on Friday. As far as the possibility of a rate cut in April goes, it will depend to a large extent upon how the government lays out the fiscal consolidation path in the Budget."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"This must be overstating the economic recovery. The three-month (November to January) average number at 4.9 per cent captures the state of industrial demand better. But I don't think this gives way to hope that there will be a significant recovery. Without any support from RBI on rates, growth will not pick up."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The data is too volatile after they introduced this new series, which has reduced the credibility of IIP as a leading indicator. Other factors like credit growth and investment sentiment are still down. As inflation continues to remain structurally high, today's data will give some comfort to the Reserve Bank of India. It will give them some space to slightly defer policy rate cuts."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, DELHI

"The spikes in data are so unpredictable, it is difficult to interpret it in a reasonable, analytical format. There is a serious credibility issue with the data. I suspect huge data reporting issues on capital goods. The RBI has discounted the impact of IIP to a considerable degree and the RBI will hold off on cutting rates on March 15, and may cut in April. Liquidity will improve naturally, with government spending coming in. I don't see the need to again cut cash reserve ratio immediately."

NIRAV DALAL, PRESIDENT AND MANAGING DIRECTOR, DEBT, CAPITAL MARKETS, YES BANK, MUMBAI

"Somewhere the data corrects the aberrations seen in the earlier months. It seems in line with the December and January data of Purchasing Manager's Index. I will be very surprised if the RBI embarks on a rate cutting cycle on March 15. However, I will not completely rule out a 25 basis points cut in the cash reserve ratio because at the start of last week, there was an outflow of about 200-250 billion rupees, which I feel partly is on account of RBI's intervention in the FX market. I expect the 10-year yield to be closer to 8.30-8.40 per cent towards the month-end."

RADHIKA RAO, ECONOMIST, FORECAST PTE LTD, SINGAPORE

"Upside surprise in Jan's factory output appears to be driven by strong rebound in consumer goods, non-durables in particular, even as production of key intermediate and capital goods stayed weak. The rebound thereby might not be rooted on firm ground and is likely to moderate in the coming months. Nonetheless signs of thawing RBI rhetoric and anticipation of rate cuts April onwards will cushion the domestic sector. After the front-loaded 75bps CRR cut, RBI's 15-March meet is unlikely to throw up any surprises, with increasing likelihood that the post-policy commentary will take on dovish hues. Focus will remain on Friday's budget and government's borrowing/ deficit targets."

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"The number is much better than expected and the big surprise element is the consumer non durable which grew at 42 per cent y/y (highest ever recorded since the time this series was launched in 2004-05). Looking at the breakdown of the consumer non durables, a 92 per cent growth in foods and beverages(has grown in the range of -3.5 to 6.0 per cent since 2004-05) was the prime driver. While role of low base cannot be denied, such high growth rates are difficult to comprehend. Nevertheless as the IIP series has been pretty erratic , it does not alter our view on the upcoming RBI policy meeting where we expect rates to remain unchanged."

ASHOK GAUTAM, SENIOR VICE PRESIDENT AND GLOBAL HEAD OF MARKETS, AXIS BANK, MUMBAI

"This is much above people's expectations, but I don't think it will have an immediate impact on the RBI's rate decision. The central bank is certainly going to wait for the budget and the government's borrowing programme for the next year and what is going to be the (fiscal) deficit number. That is why we believe the rate decision will happen in April."

NITESH RANJAN, CHIEF ECONOMIST, UNION BANK, MUMBAI

"Economic activity in general is showing improvement, but not to the extent that could justify IIP growth of 6.8 per cent. Also, it is not broad-based if you see sectoral or item-wise growth. Post Friday's CRR cut, the RBI is likely to hold rates unchanged on March 15. Budget numbers and inflation data, rather than IIP, would have larger bearing on its April call."

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA, MUMBAI

"Industrial activity has surprised largely on account of consumer non-durable goods, which suggests that recovery is not broadbased. Subdued capital goods output continues to increase the call for expediting measures to boost investment activity."

"We continue to believe a rate pause in the policy review this week."

DEVEN CHOKSEY, MD, KR CHOKSEY SECURITIES, MUMBAI

"Numbers are robust on back of base effect and higher execution in Jan to March quarter. These numbers are higher than expectations but will not impact the case for a rate cut."

ANEESH SRIVASTAVA, CHIEF INVESTMENT OFFICER, IDBI FEDERAL LIFE INSURANCE, MUMBAI

"IIP numbers are certainly ahead of expectations, but market will prefer to ignore these numbers as there are bigger events budget and monetary policy lined up. RBI would wait for the budget before cutting rates."

MARKET REACTION

* The benchmark 10-year 8.79 per cent, 2021 bond yield rose 2 basis points to 8.28 per cent.

* The benchmark five-year swap rate and the one year swap rates were up 4 basis points each.

* The partially convertible rupee was unmoved at 49.96/97 per dollar.

Copyright @ Thomson Reuters 2012