Tuesday, June 21, 2011 10:58 Hrs IST

Growth Seems To Be Slowing Down With the Industrial Production Index Showing Signs of Weakness

DSP BlackRock Mutual Fund – Equity Market Views

As of 16 June 2011, the Nifty index closed at 5,397, down 2.9% mtd while the Sensex Index closed at 17,986, down 2.8% mtd.

Based on the new series of index numbers of industrial production with 2004-05 serving as the benchmark, the growth rate of factory output has dipped to 6.3%in April 2011 from 13.1% during the corresponding month of the preceding year. Among the industry groups that have registered a high rate of growth during April 2011 were food products, paper, basic metals, office, accounting and computing machinery, motor vehicles, trailers and semi-trailers and other transport equipment.

The WPI headline inflation rose an annual 9.06 per cent in May, driven by higher manufactured goods prices. The figures showed that the manufactured products index, the largest constituent of the wholesale price index shot up 7.27 per cent, while the primary articles index rose sharply by 11.3 per cent. The index of food articles too increased by 8.37 per cent in May.

Month to date, the economy has seen FII outflows of approx. USD 174mn from equities, while the YTD outflows have been approx. USD 454mn.

Outlook

Month to date for June (as on 16 June 2011), the Index was down 2.8% on the back of continued signs of slowdown in the economy after aggressive tightening by the Central Bank in the face of stubborn inflation. From a macro economic perspective, while inflation remains at elevated levels, growth also seems to be slowing down with the industrial production index showing signs of weakness. After a poor earnings season, there have been several downgrades to earnings forecasts for the year which have contributed to the negative sentiment. The reduced likelihood of further quantitative easing in the US and continued uncertainty in peripheral Europe have also caused a lot of volatility in India as well as global markets.