slowing industrial output likely to hurt share prices
Last Updated : GMT 05:17:37
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Last Updated : GMT 05:17:37
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Slowing industrial output likely to hurt share prices

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Emiratesvoice, emirates voice Slowing industrial output likely to hurt share prices

Mumbai - Arabstoday

Factories in India are churning out more goods than a year earlier but the pace of growth in output is losing momentum, a trend that is unlikely to change over the next few months with the central bank set to raise interest rates again this week. Equity investors are cutting their positions and moving into cash, or bonds, which look a better bet in the near term for steadier returns. Combined with government\'s inability to push key reforms and long delays in building large infrastructure projects, there is every reason for investors to be cautious. \"The huffing and puffing is getting louder,\" said equity salesman Kevin D\'Souza. \"There is a risk of growth slowing to a trickle in some sectors, and probably shrinking in others.\" Industrial output in April grew an annual 6.3 per cent, data released on Friday showed, the weakest pace in three months and below March\'s 8.8 per cent rise. It was the first data using 2004-05 as the base year. Under the old series with the base year more than a decade earlier, the output expanded just 4.4 per cent compared with 7.8 per cent in March, the government said. The figures were the latest to reaffirm growth was slowing in Asia\'s third-largest economy, thanks to aggressive rate increases by the central bank to douse consumer spending and cool high inflation. India\'s GDP in the three months to March had expanded at the slowest rate in five quarters, while the services sector that makes up little over half of GDP grew at its slowest pace in 20 months in May. The latest data showed growth in output of consumer durable goods, including automobiles, fell sharply to 3.8 per cent in April from 14 per cent a month earlier, consumer goods production expanded just 2.9 per cent from nearly 12 per cent in March. Clearly, companies face a daunting task to maintain earnings growth, but the central bank is widely expected to hike rates by a quarter point on Thursday when it announces mid-quarter policy. The Reserve Bank of India has already raised rates by a total of 250 basis points in nine moves starting March last year. Still, headline inflation is running at well above 8.5 per cent and the data for May due tomorrow should be around 8.6 per cent, Kaushik Basu, the chief adviser to the finance ministry, said on Friday. The central bank is worried about the upside risk to inflation posed by the inadequate pass-through of high world oil prices, rising global commodity prices and volatile food items potentially troublesome for a nation of more than 1.3 billion people. State-controlled fuel prices in India are pegged low, and the government mired in a series of corruption scandals that has dented its image is unable to gather the courage to raise prices of diesel and cooking gas which have remained unchanged for a year even as global oil prices surged. \"The RBI is nowhere near the end of the tightening cycle. At most, it will eschew the sledgehammer like the 50 basis point hike in May,\" D\'Souza said. The top-30 Sensex slipped 0.6 per cent last week, its third weekly loss in four weeks, to 18,268.54, and analysts expect a 7-10 per cent downside as brokerages continue to slash their target price for stocks. Last week, British bank RBS lowered its price target for aluminium leader Hindalco Industries to Rs277 from Rs315, citing delays and high costs at the company\'s overseas unit Novelis. \"We revisit our volume assumptions and scale back our 2012-13 aluminium volumes by six per cent-13 per cent to factor in delays,\" the bank said in a note. JPMorgan slashed its earnings per share forecast for construction firm Punj Lloyd by 72 per cent in 2011-12 and cut the price target to Rs68 from Rs116, saying slow-moving orders and sluggish execution of project were concerns. From / Gulf News

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