Nomura is of the view that IIP data is under-estimating the real industrial cycle, and this anomaly will be corrected only when the final data are released
Brokerage house Nomura has said the sharp contraction in October IIP data was an aberration, and that the growth recovery in the economy was intact.
"The IP series has a fixed sample set and hence does not take into account the birth and death of firms and also misses on the changing consumption (and production) patterns," said the Nomura note to clients.
"Hence, we think that IP data are under-estimating the real industrial cycle, and this anomaly will be corrected only when the final data are released (with the annual survey of industries). We expect a sharp payback in IP growth next month. Auto sales, particularly medium and heavy commercial vehicle (MHCV) production, have rebounded sharply in November after the disappointing October production," the Nomura note said.
Nomura economist Sonal Varma feels consumer and business sentiment remains high, and the recent fall in inflation and commodity prices should both benefit discretionary demand and expand firms' profit margins.
"Hence, we believe that the conditioning factors for a more sustainable growth recovery are already in place and we expect growth to trend higher," the note said.
Nomura expects a 5.5 percent growth in GDP this fiscal and 6.6 percent next fiscal.
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