Economy: industrial growth remains subdued; inflation inches up again: ShareKhan PDF link

SHAREKHAN SPECIAL Monthly economy review   Economy: industrial growth remains subdued; inflation inches up again The Index of Industrial Production (IIP) remained flat in April 2012, registering a growth of 0.1%. This was significantly below the market's expectation. The sluggishness in the manufacturing sector (especially capital goods) and the decline in the mining sector continue to stress the IIP's growth. The March 2012 IIP numbers have been revised marginally upwards to -3.2% from -3.5%. For FY2012, the IIP growth has been revised upwards marginally to 2.9% compared to 8.2% in FY2011.

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  The Wholesale Price Index (WPI)-based inflation for May 2012 came in at 7.55% as against 7.23% in April 2012. The same was in line with the expectations. However, the inflation rate for March 2012 has been revised upwards sharply to 7.69% from the provisional figure of 6.89% led by an upward revision in the primary articles and the fuel segment.
• The trade deficit for April 2012 came in at $13.5 billion, lower than the trade deficit level recorded in March 2012. The trade deficit increased by 4.9% year on year (YoY) and remains a concern for the economy. The growth in exports remained weak showing an increase of 3.8% YoY (up 24.3% in March 2012) while imports grew by 3.2% YoY (down 5.7% in March 2012).

Banking: RBI maintains status quo 

• In its mid quarter policy review, the Reserve Bank of India (RBI) had maintained its status quo on the policy rates. According to the RBI, several other factors are responsible for the slowing investment cycle while the inflation scenario continues to be challenging. Going ahead, the government's fiscal action especially with regard to the fuel price hike and macro data will decide the course of the monetary action.
• The credit offtake registered a growth of 18.4% YoY (as on June 1, 2012), which was higher than the growth of 17.4% recorded in the previous month (as on May 4, 2011). The credit growth is broadly as per the RBI's guidance of 17% for FY2013.
• The deposits registered a growth of 14.1% YoY (as on June 1, 2012), similar to the growth seen during the previous month (on May 4, 2012). The slower growth in deposits continues to be a concern for the banking sector.
• The credit/deposit ratio was at 76.8% (as on June 1, 2012), marginally higher than 76.6% seen on May 4, 2012. Meanwhile the incremental CD ratio increased to 88% for the period, largely due to a slower growth in deposits.
• The yields on the government securities (G-Secs; of ten-year maturity) stood at 8.08% as on June 22, 2012, lower than 8.54% in the previous month. The G-Sec yields across the long-term maturities declined on a month-on-month (M-o-M) basis due to expectations of a rate cut and open market operations (OMOs) by the RBI.

Equity market: FIIs turned buyers 

• During the MTD period in June 2012, the foreign institutional investors (FIIs) and the domestic mutual funds were net buyers of equities. For the MTD period in June 2012, the FIIs bought equities worth Rs403 crore while the mutual funds bought equities worth Rs539 crore.

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