Low Industrial Growth Hammering The Sensex

The vicious circle of rising fuel prices and inflation have significantly impacted all sectors of the Indian economy but more so the industrial and manufacturing sectors. The IIP (Index of Industrial Production) figures released on Friday along with Inflation figures for the week ending June 28 have dealt a double blow to the Sensex.

This in spite of IT leader Infosys announcing their quarterly results on the same day and announcing that their profits were up by almost 7% .That was however of little solace as most Blue Chip stocks including Infosys have been literally hammered by the lethal combination of rising fuel prices, inflation and the latest IIP figures.

The IIP index has shown that industrial growth has grown at just 3.8% as compared to last year which saw it grow at a very good 11.3%.While it was indeed expected that this particular figure would be impacted and not come close to the earlier one, the drastic drop has been shocking. It was expected that the IIP would be maintained at least at around six to six point five percent.

Further data has indicated that the Indian markets after delivering phenomenal results have also been the ones unable to deliver hardly any results during the current bear market. This is in relation to similar markets of emerging economies in China, Brazil and Russia. This is definitely not good news especially since India has been trying to deliver a consistent rise in industrial growth.

India has traditionally been able to deliver strong results in the service sector but a slow rate of growth in the industrial sphere has managed to impact even the service sector. The Indian manufacturing sector has been a big loser as compared to last year. Luxury goods especially in the retail area have also taken a devastating hit which means that companies will definitely think twice about producing more.

All of this can in a direct way be attributed to the rise in inflation and fuel prices. The only sector that has survived this downfall and has in fact been able to surprisingly perform well is the mining sector which has grown by almost two times as compared to the previous year.

All other sectors have shown a definite decline which has led their growth rate to slip into single digits. This is a situation the Indian economy has encountered for the first time in almost seven years. However the hardest hit sector is the electricity sector which has slipped down from 9.4 % to just two percent. Clearly a case of rising fuel hitting this sector the hardest.

The government is definitely concerned about this and is expected to make a stronger assessment of the situation in a bid to make sure that growth can occur despite inflation. Something it had managed to do earlier but is clearly unable to do so with the same intensity now.

All of the above have hit the market which is merely reflecting the current economic situation in India and the world. It is for this reason that we shouldn’t be surprised if we hear that the RBI has increased interest rates for the third time in as many months.