Fall In IIP Growth: Experts' View

India's industrial output in June rose at a slower-than-expected 7.1 per cent from a year earlier, its slowest pace in 13 months, government data showed on Thursday.

The median forecast in a Reuters poll was for an annual rise of 8.4 percent. Manufacturing output rose an annual 7.3 per cent in June, the federal statistics office said in a statement.

- Manufacturing production rose 7.3 per cent in June from a year earlier.

- May's industrial output annual growth rate was revised downwards to 11.3 per cent from 11.5 per cent.

-Industrial output rose 10.4 per cent in the 2009-10 fiscal year (April-March), faster than an upwardly revised 2.8 percent in 2008/09.

A. PRASANNA, ECONOMIST,ICICI SECURITIES PRIMARY DEALERSHIP; MUMBAI:

"The numbers are slightly below our expectations. The negative surprise is primarily from the capital goods sector where growth has slowed down after 5 months of double-digit expansion.

"However it is too soon to conclude that the capital goods growth is cooling off. Overall this moderation in IIP growth in year- on-year terms is along expected lines. We see growth settling in the 8-10 percent trajectory in the coming months.

"This reading is unlikely to sway RBI's thinking as far as policy action in the September review is concerned. Inflation data holds the key for likely direction of monetary policy.

"We look for 50 basis points hike in Reverse Repo and 25 basis points hike in Repo in September as long as July WPI inflation prints above 10 per cent."

SAUGATA BHATTACHARYA, CHIEF ECONOMIST, AXIS BANK, MUMBAI

"The number is lower than our estimates but it seems that consumption demand in consumer goods is more or less intact. The drop has come in from capital goods, which is largely due to a base effect."

"Going forward, we stick to our full year average forecast of 10-11 percent in 2010-11."

"And the probability of a rate hike in the September review by the RBI is lower now. But people may wait for the inflation data before taking a call on that."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

"Deceleration in IIP growth is along expected lines, as the statistical base effect has started diminishing.

"However, rising cost pressures are also responsible to some extent. Going forward, we will see IIP growth numbers in the range of 7 percent to 9 percent."

SEAN CALLOW, SENIOR CURRENCY STRATEGIST WESTPAC INSTITUTIONAL BANK, SYDNEY:

"IIP was certainly due to cool down after hectic growth earlier this year, but the extent of the deceleration is rather eye-catching, slipping below the 8.4 percent average growth rate of the past five years."

"Inflation is running too fast to allow the RBI the luxury of skipping a hike at the next meeting."

"USD/INR remains well supported near term and will need a clear improvement in global equity sentiment in order to resume last week's probe of 46.00."

BRIAN JACKSON, SR EMERGING MARKETS STRATEGIST, ROYAL BANK OF CANADA, HONG KONG:

"The data for India's manufacturing is giving off mixed signals at the moment - today's official industrial production data show growth has come off sharply over the last two months, but PMI numbers suggest conditions remain robust."

"The RBI has taken a balanced approach to policy tightening in recent months, and today's number - and concerns about the global outlook - will factor into its deliberations."

"However, getting inflation down remains its main priority, and WPI inflation data out early next week will play a more important role in determining whether more rate hikes are likely."

"We expect another double-digit number for July, suggesting the RBI still has more work to do to contain price pressures, and we continue to forecast another 50 basis points of rate hikes by the end of 2010."

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:

"Two factors have weighed on this number. First, as the impact of restocking and pent-up demand wanes, slower but more sustainable IP growth is inevitable. However, an elevated base last year has accentuated this impact.

"In particular, unlike the usual seasonal pattern of lower industrial activity every June versus May, June 2009 defined the upturn in the cycle as India emerged from the global financial crisis.

"This was evident as IIP growth surged to 8.3 percent in June 2009 from 2.1 percent in May. Thus, in addition to the usual seasonal slowdown, the headline figure this time might also suffer from an elevated base last year."

ANJALI VERMA, ECONOMIST, MF GLOBAL, MUMBAI

"It is below expectations and I think it is largely the manufacturing side that has disappointed. Although the base was higher, but on that basis only I was expecting around 8 percent.

"Yes it is below expectations and one will have to see the trajectory going ahead. Overall, I think one will have to be more vigilant.

"We are seeing that the infrastructure index is below par and it has not been performing for months. So one will have to be a little more vigilant now"

MARKET REACTION:

- The partially convertible Indian rupee fell to 46.96 from 46.93 after the data. It ended at 46.70/71 per dollar on Wednesday.

- The yield on the benchmark 10-year bond fell to 7.78 percent, from 7.80 percent before the data. It had ended at 7.81 per cent on Wednesday.

- The BSE Sensex was down 0.56 percent vs down 0.44 percent earlier

BACKGROUND:

- The government expects the economy to grow around 8.5 percent in the current fiscal year that started on April 1, after expanding 7.4 percent in the previous year.

- Robust growth has raised prospects of capacity constraints, which are seen aggravating price pressures.

- Official data last month showed the wholesale price index rose an annual 10.55 percent in June.

- The Reserve Bank of India is still widely expected to tighten monetary policy and raise rates in the coming monetary policy review due to inflationary pressures.

- The RBI raised rates by 25 basis points each in March, April and early July, and followed this with a more forceful hike at a scheduled review late last month.

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(Reuters)