MAY IIP GREW BY 5.6% ::Kotak Sec

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MAY IIP GREW BY 5.6%
May IIP grew by 5.6% significantly lower than the consensus
estimate of 8.5%; IIP for April 2011 revised downwards
to 5.8% from earlier estimate of 6.3%
Industrial production growth moderated in May to a 5.6% from a
downwardly revised 5.8% in April, suggesting that the economic growth is
moderating. On a MoM seasonally adjusted basis, growth in May was 0.7%
against that of -3.4% in April and 2.0% in March. MoM growth in May was
-0.96% on non adjusted basis. On 4MMA basis IIP growth slowed to 6.7%
from the average of 9% in FY11.
In light of slowing economy and higher interest rates, we place a downside bias for
GDP growth in FY12, which is largely expected to be around 8% levels. Arrival of
monsoon and its impact on food inflation would be key factor for economic growth
and interest rate trajectory.
Despite weak data on manufacturing for these two consecutive months, we expect
the RBI to increase policy rates by 25bps at the upcoming quarterly review to manage
inflationary expectations; WPI for the June is likely to come-in at double digit
levels on Thursday July 14th.
Key highlights
The sectoral growth (use-based classification) has been as under:
n Basic goods: 7.3% (against 6.9% in April)
n Capital goods: 5.9% (against 7.3% in April)
n Intermediate goods: 1% (against 4.5% in April)
n Consumer goods: 5.4% (against 4.3% in April)
n Consumer durables: 5.2% (against 3.8% in April)
n Consumer non-durables: 5.6% (against 4.9% in April)