IIP growth of October 2008 turned negative

As expected IIP growth for Oct’08 contracted by 0.4% (consensus: 1%, last year corresponding month: 12.2%). It is the first time IIP has contracted on %yoy basis since early months of 1993.

The growth was mainly driven down by dismal performance in manufacturing sector (-1.2% yoy) and consumer goods (-2.3% yoy) as well as high base. October being the festival month also had lesser number of working days.

Bottom Line: IIP numbers definitely indicate that the industrial production and hence GDP growth is softening. We expect this trend to continue till Dec and thereafter to slowly reverse. The slowdown in IIP is due to a combination of lagged impact of earlier rate increase, global slowdown and credit crunch. Decline in export oriented sectors like Textiles (down 9.6%yoy), Leather etc are sharper. It is encouraging to see the authorities reacting immediately and coming up with 2nd fiscal package within a week of announcing the first one for the labour-intensive export sector.