IIP likely to be below 4% on fading base effect : Citigroup

NEW DELHI: Country's industrial production may remain below 4 per cent in November, a Citigroup report says adding that the base effect is likely to fade as in the corresponding period last year IIP was at 5.2 per cent.

Industrial output grew at five-year high rate of 9.8 per cent in October on impressive performance of capital and consumer goods.

The latest IIP figure marks a significant rebound from 3.84 per cent growth recorded in September 2015 and a contraction of 2.7 per cent in October last year.

"The numbers had a boost from favourable base effect but signs of a gradual recovery are definitely present as average IIP growth in the last three months (6.6 per cent) is much higher than average growth in IIP (3.6 per cent) over the six months before that", Citigroup said in a research note.

The base effect was largely due to the shift in festival season between 2014 and 2015.

In 2014, both Dussehra and Diwali were in the month of October, leading to fewer working days and a lower IIP number. However, in 2015, Dussehra was in October and Diwali was in November.

"The festive season has been pushed back leading to higher pre-festival stocking in October and relatively more working days in October as Diwali was in November", the Citigroup report said.

The global brokerage noted that going forward, in November, the base effect is likely to fade as last year IIP growth in November had jumped to 5.2 per cent.

Moreover, auto production has declined from 15 per cent year-on-year in October to (-) 8.6 per cent in November and electricity production has also fallen.

"On the back of this, IIP is likely to normalise towards sub-4 per cent in November. However, beyond the monthly volatility, we continue to see modest improvement in IIP trends and remain confident of our view that industrial growth in GDP is likely to rise to around 7 per cent in this fiscal from about 6 per cent last fiscal", the report added.

The previous high in the index of industrial production (IIP) was in October 2010 at 11.36 per cent.

As per data released by the Central Statistics Office (CSO), the manufacturing sector, a key indicator of economic activity, grew 10.6 per cent year-on-year in October.