IIP - Downturn continues : Edelweiss, PDF link

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IIP contracted in March by ~3.5% YoY against our expectation of ~1.6% expansion. Sharp contraction of ~21% in capital goods was the key reason behind the dip; but given high volatility in this component, the overall weakness may be exaggerated. Nonetheless, it is clear that industrial activity remains depressed and the uptick in IIP since late last year is not sustaining as a trend. Therefore, while the industry may have emerged from a phase of extreme weakness (May-Oct last year), recovery is weak and fragile. Q4FY12 industrial activity has also been weaker than expected. Ergo, we are downgrading our FY12 GDP growth forecast to ~6.8% from ~7.0% earlier. We reiterate that for a sustainable turnaround in business cycle, rate cuts need to be complemented with pick up in government policy action. Until then, sharp upturn in the economy will remain a pipedream.

IIP - Downturn continues

Regards,