Industrial activity improved in May, expanding 2.4% YoY (vs the expectation of 2.2%) against a mild contraction of 0.9% in April. The pick-up was seen on sequential as well as YoY basis and across all industry segments. However, the level of industrial activity still remains sluggish with investments being particularly depressed. Few forward looking indicators - cement dispatches, PMI etc - do point towards some strength ahead, but a sustained turn-around would require a major improvement in the policy environment.
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As regards the monetary policy, we reiterate that contained demand pressures, a below-par economic activity, sharply weakening global economy and associated softening in global commodities provide room for additional monetary easing and accordingly, expect RBI to deliver 25bps repo rate cut in the forthcoming policy meeting.
Regards,
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