Weak IIP data drives market down

Business

oi-Monika

By Monika Nihalani

Published: Monday, December 12, 2011, 14:58 [IST]

Indian markets witnessed a sharp fall after the government released negative IIP numbers. The benchmark SENSEX declined to 15,927, down by 155 points and the 50-share scrip NSE Nifty slipped below 4,800 level to 4,785, down by 82 points.

India's industrial output as measured by index of industrial production (IIP), contracted to -5.1% in October on an yearly basis. This is the first time after June 2009, the figures dipped into the negative zone.

IIP growth stood at 11.3% in October 2010 and 2% in September 2011.

The fall was registered due to slow performance of the sectors like manufacturing, mining and capital goods. India's manufacturing sector which contributes 76% of the total industrial production shrank by 6% in October.

The recent weakness in the IIP numbers is the clear sign of adverse impact of the continuous rate hikes by the Reserve Bank, which in turn increased the cost of raw materials for the manufacturers.

The RBI has raised key policy rates for the 13 consecutive times since March 2010 to curb inflation.

The policy-makers of India have kept IIP figures on the side and have been waiting for the WPI inflation numbers which play a key role to for the government.

The RBI may pause over the next policy rate hike come Friday, December 16 due to slowing economic growth.

The economy grew 6.9% in September quarter, the slowest growth seen in the period of two years.

With the food inflation numbers cooling down, the policy-makers are expecting Inflation numbers to also come down for the month of November.

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