The Index of Industrial Production (IIP) for February has come in at -1.2% as against 9.5% year-on-year and negative -0.5% month-on-month.

Atsi Sheth, Chief Economist, Reliance Equities, said the worst was however behind the economy. “IIP at -1.2% was actually expected by most people. So, the fact that it has come in around that level is a good sign to my mind,” Sheth said.

“The sign of recovery usually tends to be consumer goods. So, you want to see consumer goods recovery one month later or two months later is of course not enough,” she said, adding, “But if you see a sustained recovery in consumer goods, both durables and non-durables, that is usually a sign that the economy has bottomed out.”

Sheth added that she was expecting a positive IIP number in the month of April.

Here is a verbatim transcript of Atsi Sheth’s exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Would you reckon that the worst is behind us and that these numbers are slightly exaggerated in that sense?

A: I would tend to agree with that. If you are talking about the worst in terms of falling output, I think it is definitely behind us. February is sort of a strange month. On a month-on-month basis, February activity tends to be a little bit lower than January. You are also seeing the impact of the statistical base effect. February last year was a very strong one. So, -1.2% was actually expected by most people. So, the fact that it has come in around that level is a good sign to my mind.

Q: What are the positives that you are actually picking up from the data because to our minds it seems to be on the capital goods side as well as the consumer durables side? Would you go with that?

A: I would. Just thinking about slowdowns and the business cycle as it usually runs its course, you find that when you are at the bottom of the cycle – of course everything is decelerating – but the sign of recovery usually tends to be consumer goods. So, you want to see consumer goods recovery one month later or two months later is of course not enough. But if you see a sustained recovery in consumer goods, both durables and non-durables, that is usually a sign that the economy has bottomed out. Now as you just said, consumer durables have been doing well. They have sort of bottomed out and seem to be recovering a little bit. Consumer non-durables have posted a sharp fall. So, I am a little bit worried about that from the consumption side because consumption usually must lead a recovery. We are seeing that durables are doing okay, non-durables are not.

Q: There have been some sparks in auto sales, cement, and steel. Does that repose confidence as well?

A: To an extent. My thesis — and I think most people share this — is that the government has been spending. Some of the government programmes, whether it is a farm loan waiver or the Pay Commission hikes to bureaucrats, just infusing liquidity through the NREGA, all that has put money into the system. You are seeing that reflected in cement and autos. Whether that will sustain over the next six or 12 months is a bit of a question. You need to see the private sector coming and private demand also feeding into the system. So, I think those numbers are good. But I don’t think those numbers are sustainable until private sector demand revives.

Q: Given the demand situation, and given what we have just discussed, how hopefully and how soon do you actually see a positive IIP number?

A: Our forecast is that some time in April, you will see IIP turn positive. But to be honest, I am a little bit worried about agricultural output because while IIP captures only manufacturing, manufacturing is closely linked to rural demand. At this point, we have seen rural demand doing very well partly because the government has been infusing liquidity in rural India.

If the monsoon fails, and agricultural output is low, from the last couple of cycles we have seen again in 1999-2002, when agricultural output failed, IIP recovery was also stunted. That is the thing I worry about.

If that thing doesn’t happen, I think in about August, you should see a sustained recovery taking hold. So, we want not just positive numbers, but positive numbers that are closer to the 10% mark than the 1% mark.

Q: Two quick questions. One is the weakness on the external front, particularly export numbers. And, if you are watching agriculture quite closely, what kind of numbers are you working for as far as GDP growth for FY10 is concerned?

A: We are assuming 6.3% for the year that is coming out. We expect agricultural growth to be about the average, which is about 3%. So, the risk there is of agricultural growth not being 3%, then with our 4-5% expectation of manufacturing growth also not coming true, the 6% GDP growth is in real danger.

source: moneycontol

Tags: bse, economy, iip, moneycontrol, nse

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