Oct IIP contracts to -1.8%, Nov CPI rises to 11.24%

The macro data released late on Thursday came in much harsher than what the street was expecting. While the Index of Industrial Production (IIP) contracted to -1.8 percent in October, consumer price inflation (CPI) has touched an astounding 11.24 percent mark in November.  The poor data leaves no room for any doubt that Reserve Bank (RBI) will raise key rates next week, in line with what Dr Raghuram Rajan had sounded in his previous policy announcement. Vegetable prices rose 61.6 percent in November from a year earlier, compared with a 45.67 percent increase in the previous month. Fruit prices rose 15 percent. Pulses were dearer by 1.2 percent, cereals by 12.07 percent and milk products by 9.06 per cent in November. The price rise of protein-rich items such as eggs, meat and fish was 11.96 percent.


Inflation in the food and beverages segment was 14.72 percent compared with 12.56 percent in the previous month. The provisional inflation rates for rural and urban areas for November were 11.74 percent and 10.5 percent, respectively. Meanwhile, industrial output for April-October period remained flat as compared to 1.2 percent in the same period of 2012-13. The manufacturing sector declined by 2 percent in October as against a growth of 9.9 percent a year ago. During April-October, the sector's output contracted 0.3 percent compared to a growth of 1.1 percent in same period last year. The mining sector saw a contraction of 3.5 percent in October as against a dip of 0.2 percent in the same month last fiscal. Power generation, however, posted a growth of 1.3 percent in the month under review compared to 5.5 percent a year ago.

The market was expecting the central bank to hike repo rate by 25bps on December 18, but with both these macro data on the negative side, two key questions to ponder upon are - whether the rate hike would be 25 bps or 50 bps and whether the RBI will rethink about the liquidity tightening measures that were taken earlier and were gradually tapered off, Chakraborty said. He feels 25 bps rate hike is a done deal now. Meanwhile, Sabnavis is confident that RBI would announce a 25bps repo rate hike, infact he wouldn’t be surprised if it is a 50 bps rate hike because RBI governor’s aim has been to combat high inflation. Sujan Hajra, Co-Hd - Research & Chief Economist, Anand Rathi Financial Services is also sure that a 25 bps rate hike in the forthcoming policy is a given.

The equity market will see a kneejerk reaction because the data is way ahead of what the street was expecting, but it may last for too long, cautions Ambareesh Baliga, Managing Partner-Global Wealth Management, Edelweiss Financial Services . However, this would not have a long term impact on the market, but brace for some correction tomorrow, he further added. “Earlier people were expecting either a zero hike to a 25 bps hike. That expectation will go up to 50 bps now based on these figures, because of which you will have a kneejerk reaction,” he said. Meanwhile, if the RBI opts for a rate hike, the Indian rupee would marginally strengthen, Hajra said. With the trade deficit coming below USD 10 billion, the pressure on the rupee from the current account side to depreciate has ebbed a bit. Also, with some level of normalcy returning to the swap deal, the capital account side pressure has also eased. I do not think there is a case for the currency to depreciate in the immediate term, he added.