The surprise pick-up in industrial production led by growth in capital goods sector, and cooling inflation fuelled hopes of prime minister Narendra Modi ending the longest growth slowdown in India over a decade though the government is yet to flag off any major policy initiatives.
Stock markets cheered on Wednesday with Sensex touching an all-time high and closing above the psychological mark of 28000, thanks to sustained buying of stocks in auto, banking and FMCG sectors by foreign funds.
The Index of Industrial Production (IIP) climbed more than five times to 2.5% while the Consumer Price Index (CPI) cooled to 5.52% from 6.46% reported in September. IIP came in at a higher than expected 2.5% versus 0.5% in August, driven by a positive growth in capital goods sector. In a major turnaround, the capital goods sector grew 11.6% as against a negative 11.3 % in August.
The retail inflation for October slowed to 5.52% from 6.46% in September helped by the lower fuel and food prices.
Spreading cheers in India's domestic market, global oil prices continued to slide, with benchmark Brent crude hitting a four-year low of $81 a barrel.
Though the retail inflation has fallen to 5.5% below the Reserve Bank of India's (RBI) target of 6% for January 2016, the central bank is unlikely to cut the interest rates any time soon. Rating agency Crisil said on Wednesday that with inflation falling and industrial growth yet to pick up momentum, the call for reduction in policy rates to boost growth and investment is getting louder.
In July-September, industrial GDP growth (excluding construction) is estimated at 1.2% compared to 4% in the previous quarter. "We believe that the RBI would wait till there are clear indications that the fall in inflation will be sustained, before beginning to lower repo rate. In fact, excluding vegetable prices, retail inflation in October was 6.1%," said the rating agency.
"A significant decline in crude oil prices globally has contributed to the downward price pressures in transport and communication and fuel inflation. Crude oil prices for the Indian basket ended the October month at $83.8 per barrel as compared to $95.3 per barrel at the beginning of the month. We expect this to continue going forward and crude oil prices globally to average at $100 per barrel in this fiscal as compared to $105.5 in 2013-14," said Crisil.
In terms of industries, 15 out of the 20 two industry groups in the manufacturing sector have shown positive growth during September as compared to the corresponding month of the previous year. The consumer durable goods growth was at a negative 11% versus a negative 15 % in August. Consumer goods growth came in at negative 4% as against negative 6.9% in August. The consumer non-durables growth stood at 1.5% versus a negative 0.9% in August. Other rating agency ICRA however estimated GDP growth to decline to 5% during July-September from 5.7% in April-June, on the back of factors such as an unfavourable kharif harvest, sluggish manufacturing performance, slowdown in export growth and moderation in the pace of expansion of central government spending.
"Nevertheless, average GDP growth is expected to improve moderately to 5.4% in 2014-15 from 4.7% reported in the previous year," says ICRA.
The rating agency predicts the retail inflation to moderate, benefiting from a favourable base effect, a decline in domestic fuel prices and, to a smaller extent, easing global prices of other commodities.
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