India's industrial output growth rose in May to 2.4 percent, exceeding analysts' expectation of 1.8 percent and as compared to a dismal growth of 0.1 percent registered in April.
The cumulative growth for the period April-May 2012-13 stands at 0.8% over the corresponding period of the previous year, the data released by the Central Statistics Office at the Ministry of Statistics showed.
Though the index of industrial production (IIP) growth rate of 2.4 percent is very low compared to the 6.2 percent recorded in May last year, the current growth rate is seen as a positive indicator of economic recovery.
The IIP is in line with our expectations; however we were pleasantly surprised with the extent of the pickup. Nonetheless this number needs to be put in perspective as a growth of 2.4% is still quite a sober reading. How the IIP behaves going forward will depend a lot on how investment takes place in the economy, Jyotinder Kaur, Economist at HDFC Bank, told the Economic Times.
The growth was recorded in most sectors except the mining sector (-0.9 percent), which is troubled with mining bans and restrictions in several states because of corruption allegations and scandals. The manufacturing sector output rose 2.5 percent in May compared to the 0.1 percent growth in April while consumer durables recorded a robust growth rate of 9 percent.
The electricity output went up by 5.9 percent and basic goods grew by 4.1 percent in May. However, capital goods sector saw a decline of 7.7 percent, reflecting the slowdown in investment in infrastructure.
However, the positive growth rate failed to enthuse the country's equity markets which were trading in the red with Infosys's not-so-good first quarter results disappointing the investors.
Bombay Stock Exchange's Sensex was trading at 17,229.80, down 259.34 points or 1.48 percent and National Stock Exchange's Nifty was trading at 5234.85, 71.45 points or 1.35 percent down than its previous close on Wednesday.
The industry is also on a wait and watch policy and believes that the current growth will not be sufficient enough to prompt the Reserve Bank of India to cut the interest rates.
Today's factory output number is unlikely to change the stance of the Reserve Bank of India one way or the other. The room to cut rates is limited because the slowdown is supply-driven, and it will not help much to ease policy rates, Leif Eskesen, chief economist for India and ASEAN at HSBC Bank, was quoted as saying by NDTV-Profit.