IIP down by 0.5% for Jan 09
The IIP data for Jan 09 was announced yesterday. Though the data was lower than our expectation, it was in line with mkt expectations. The positives from the data release were that capital goods showed a robust growth along with decent show by consumer durables. However overall manufacturing was still down. We expect the Feb IIP data to be better because in Feb a lot of industrial activity picked up. Also a key point to note is that IIP number for Dec 08 has been revised from negative of 2% to negative 0.6%. This may lead us to conclude that probably the IIP number for Jan may also be revised upwards.
Headline Inflation down to 2.43% but on flip side food articles prices are up by 8% YOY
Due to large base effect & cut in metal prices while the headline inflation is down to 6 years low, the food articles have shown an increase in prices.
Update on Pharma sector
About 50% of all the exports of pharmaceuticals that happen out of India go to semi regulated countries like CIS (Russia), Latin America & Africa regions. Many of the countries in these regions have seen a depreciation of their home currencies to the tune of 40 to 50%. As a consequence of that imports into these countries are becoming costlier & therefore uncompetitive to import from India. The other negative emanating from this is that the payments by importers are getting delayed thereby putting pressure on Indian exporters.
Companies in Emkay universe that are most impacted negatively due to this are Ipca Labs, Dr Reddys, Glenmark & Ranbaxy. We expect these stocks to remain under pressure though we believe most of this bad news is already priced in.
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