Industrial production fell flat on its nose in March, contracting by 3.5% y-o-y (vs. +4.1% in February). By sector the contraction was led by manufacturing and by use capital goods was responsible for the damage. Today's number will be of concern to the RBI, but it may still remain on hold for a bit in light of recent improvements in PMI readings, faster credit growth, and still firm inflation pressures.
Factory output contracted by no less than 3.5% y-o-y in March (vs. +4.1% in February). This was well-below consensus (+1.7%) and even our more bearish forecast (0.0%). In sequential terms, industrial production fell 3.0% m-o-m sa (vs. +2.1% in February) and 1.3% 3m-o-3m sa (vs. +0.9% in February).
By industry groups, manufacturing (-4.4% y-o-y vs. 3.9% in February) and mining (-1.3% y-o-y vs. 2.7% in February) contracted. Electricity production registered positive growth, but it decelerated notably on the back of power outages (2.7% yo-y vs. 8.0% in February).
The March IP number was a negative surprise, but the series' volatile nature suggests caution in over-interpreting just one reading. With other more reliable high-frequency indicators somewhat firmer and inflation still running high, today's IP number will not by itself persuade the RBI to move again. However, more of the same from other indicators would.
In addition, progress on structural reform will, by implication, be associated with an easing of policy paralysis, which could have an immediate positive impact on sentiments and, thereby, investments, even if the policies by themselves take time to fully implement.
