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Praveen Gurwani
India Industrial Output Slows, Triggering Stock Slump
-- India's industrial production growth slumped to a 10-month low, triggering a stock-market decline on concern that central bank measures to restrict lending will damp economic expansion.
Production at factories, utilities and mines increased 6.2 percent from a year earlier, after gaining 11.4 percent in September, the Central Statistical Organisation said in New Delhi today. That was less than all 15 forecasts in a Bloomberg News survey, where the median was 9.6 percent.
ACC Ltd., India's biggest cement maker, and Reliance Industries Ltd. led the Sensex index to its biggest points drop in six months amid speculation the pace of expansion in India's $775 billion economy may slow. Moderating growth may deter the central bank from raising rates next month after using three different policy tools in the past five months to curb inflation.
``The central bank has achieved its objective of tightening liquidity, and we can see the economy slowing down over a period of time,'' said Navneet Munot, who helps manage the equivalent of $3.8 billion of Indian stocks and bonds at Birla Sunlife Asset Management Co. in Mumbai. ``The economy can sustain the current pace over the next two quarters, but after that we can realistically expect growth at 7.5 percent to 8 percent.''
The Bombay Stock Exchange's Sensitive Index, or Sensex, tumbled 404.41 points, or 3 percent, to 12,995.02, the biggest fluctuation among equity markets included in global benchmarks.
Rupee Falls
The rupee fell as much as 0.2 percent to 44.935 following the release of the data. It ended the day little changed at 44.835 against the dollar from 44.8488 yesterday, according to data compiled by Bloomberg.
The price of the benchmark 7.59 percent note due April 2016 fell 0.63, or 63 paise per 100-rupee note, to 99.73 as of the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The yield rose 10 basis points, or 0.1 percentage point, to 7.63 percent.
The Reserve Bank of India on Dec. 8 unexpectedly raised the so-called cash reserve ratio, or the amount of cash lenders must set aside to cover deposits, to 5.5 percent from 5 percent as outstanding bank lending doubled in the past three years and is growing at over 30 percent since April.
The central bank has increased its reverse repurchase rate three times this year to reduce cash in the banking system. The bank left the rate unchanged in the last monetary policy announcement on Oct. 31 and raised the repurchase rate, or the overnight lending rate, for the fourth time this year, as it wants to contain prices without disrupting growth.
Manufacturing Slowdown
Manufacturing growth halved to 6 percent in October from a year earlier from after 12 percent in September, according to today's report. That was the slowest pace in 15 months. Mining output rose 4 percent, less than 4.3 percent in the previous month. Electricity production growth slowed to 9.7 percent from 11.5 percent.
Engineering and construction stocks declined. ACC fell 6 percent, Grasim Industries Ltd., the nation's third-largest cement maker, fell 7.3 percent, while Bharat Heavy Electricals Ltd., India's biggest power-equipment maker, declined 3.9 percent. Reliance Industries, the nation's biggest non-state run company, fell 2.8 percent.
``There is no need to panic about these numbers, although if they don't bounce back strongly in November that would be much more alarming,'' said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc. in Singapore. ``We very much doubt the rate tightening delivered by the Reserve Bank of India over the last eighteen months is suddenly coming through.''
Industrial production, a quarter of India's economy, expanded 10.3 percent in the seven months ended October, faster than the 8.6 percent in the same period last year.
October's industrial production growth may have been lower than expected because of the pace of output expansion a year earlier, analysts said.
`One-Off Development'
``The elevated base last year for industrial production explains why we have a disappointing number now,'' said Rajeev Malik, an economist at JPMorgan Chase & Co. whose 7.6 percent forecast was the lowest in the Bloomberg survey. ``This is a one-off development and we'll see 10 percent plus growth resuming in November. The October data shouldn't be interpreted to mean these are signs of a slowing economy.''
India's economy, Asia's fourth-largest, has grown more than 8 percent in six of the past seven quarters, gaining 9.2 percent in the three months to Sept. 30.
Sustained economic growth in India is fueling the inflation rate, which stood at 5.3 percent in the week ended Nov. 25, capping seven months above the government's ``tolerance'' level of 4 percent.
Finance Minister Palaniappan Chidambaram said on Monday that India's current inflation rate is ``unacceptably high,'' and the government will take measures to bring it down.
Reserve Bank of India Governor Yaga Venugopal Reddy and his central bank colleagues are due to release their next monetary policy statement on Jan. 30.
To contact the reporter on this story: Kartik Goyal in New Delhi at [email protected] . :tea:
-- India's industrial production growth slumped to a 10-month low, triggering a stock-market decline on concern that central bank measures to restrict lending will damp economic expansion.
Production at factories, utilities and mines increased 6.2 percent from a year earlier, after gaining 11.4 percent in September, the Central Statistical Organisation said in New Delhi today. That was less than all 15 forecasts in a Bloomberg News survey, where the median was 9.6 percent.
ACC Ltd., India's biggest cement maker, and Reliance Industries Ltd. led the Sensex index to its biggest points drop in six months amid speculation the pace of expansion in India's $775 billion economy may slow. Moderating growth may deter the central bank from raising rates next month after using three different policy tools in the past five months to curb inflation.
``The central bank has achieved its objective of tightening liquidity, and we can see the economy slowing down over a period of time,'' said Navneet Munot, who helps manage the equivalent of $3.8 billion of Indian stocks and bonds at Birla Sunlife Asset Management Co. in Mumbai. ``The economy can sustain the current pace over the next two quarters, but after that we can realistically expect growth at 7.5 percent to 8 percent.''
The Bombay Stock Exchange's Sensitive Index, or Sensex, tumbled 404.41 points, or 3 percent, to 12,995.02, the biggest fluctuation among equity markets included in global benchmarks.
Rupee Falls
The rupee fell as much as 0.2 percent to 44.935 following the release of the data. It ended the day little changed at 44.835 against the dollar from 44.8488 yesterday, according to data compiled by Bloomberg.
The price of the benchmark 7.59 percent note due April 2016 fell 0.63, or 63 paise per 100-rupee note, to 99.73 as of the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The yield rose 10 basis points, or 0.1 percentage point, to 7.63 percent.
The Reserve Bank of India on Dec. 8 unexpectedly raised the so-called cash reserve ratio, or the amount of cash lenders must set aside to cover deposits, to 5.5 percent from 5 percent as outstanding bank lending doubled in the past three years and is growing at over 30 percent since April.
The central bank has increased its reverse repurchase rate three times this year to reduce cash in the banking system. The bank left the rate unchanged in the last monetary policy announcement on Oct. 31 and raised the repurchase rate, or the overnight lending rate, for the fourth time this year, as it wants to contain prices without disrupting growth.
Manufacturing Slowdown
Manufacturing growth halved to 6 percent in October from a year earlier from after 12 percent in September, according to today's report. That was the slowest pace in 15 months. Mining output rose 4 percent, less than 4.3 percent in the previous month. Electricity production growth slowed to 9.7 percent from 11.5 percent.
Engineering and construction stocks declined. ACC fell 6 percent, Grasim Industries Ltd., the nation's third-largest cement maker, fell 7.3 percent, while Bharat Heavy Electricals Ltd., India's biggest power-equipment maker, declined 3.9 percent. Reliance Industries, the nation's biggest non-state run company, fell 2.8 percent.
``There is no need to panic about these numbers, although if they don't bounce back strongly in November that would be much more alarming,'' said Robert Prior-Wandesforde, an economist at HSBC Holdings Plc. in Singapore. ``We very much doubt the rate tightening delivered by the Reserve Bank of India over the last eighteen months is suddenly coming through.''
Industrial production, a quarter of India's economy, expanded 10.3 percent in the seven months ended October, faster than the 8.6 percent in the same period last year.
October's industrial production growth may have been lower than expected because of the pace of output expansion a year earlier, analysts said.
`One-Off Development'
``The elevated base last year for industrial production explains why we have a disappointing number now,'' said Rajeev Malik, an economist at JPMorgan Chase & Co. whose 7.6 percent forecast was the lowest in the Bloomberg survey. ``This is a one-off development and we'll see 10 percent plus growth resuming in November. The October data shouldn't be interpreted to mean these are signs of a slowing economy.''
India's economy, Asia's fourth-largest, has grown more than 8 percent in six of the past seven quarters, gaining 9.2 percent in the three months to Sept. 30.
Sustained economic growth in India is fueling the inflation rate, which stood at 5.3 percent in the week ended Nov. 25, capping seven months above the government's ``tolerance'' level of 4 percent.
Finance Minister Palaniappan Chidambaram said on Monday that India's current inflation rate is ``unacceptably high,'' and the government will take measures to bring it down.
Reserve Bank of India Governor Yaga Venugopal Reddy and his central bank colleagues are due to release their next monetary policy statement on Jan. 30.
To contact the reporter on this story: Kartik Goyal in New Delhi at [email protected] . :tea: