The year 2012 has started off on a good note for the markets. Indian equities, rupee and bonds have all gained handsomely calendar year to date, with a rally of over 12% by the Sensex and Nifty, 6.5% by the Rupee and 30bps by government bonds. The market rally has been accompanied by mixed economic data.
On the positive front, manufacturing and service activity for January 2012 showed good growth with the manufacturing PMI (Purchasing Manager Index) coming in at eight month highs and services PMI coming in at five month highs. Passenger car sales grew for the third straight month in January. Inflation as measured by the WPI (Wholesale Price Index) printed at 6.55% for the month of January 2012 against 7.47% seen for the month of December 2011 and over 9% levels seen for the most of the calendar year 2011.
On the negative side, IIP (Index of Industrial Production) grew by 1.8% in December 2011 against a growth of 5.9% seen in November 2011. The IIP index showed negative growth month on month. However IIP numbers are being overlooked by markets given its unreliable data. The GDP growth forecast for 2011-12 was pegged at below 7% by the government, down from fiscal beginning forecast of 9%.
Direct tax collections are lagging behind with net direct tax collections up by 9% year on year for the April-January 2012 period. Net direct tax collection is around 60% of budget for the full year 2011-12 and is unlikely to see huge jumps in the next two months. Indirect tax collection on the other hand is on track to meet its budgeted targets with indirect tax growth for April-January 2012 at 15% and at close to 70% of full year target.
Trade numbers were positive month on month with exports and imports showing growth over the month of January. The government is projecting a 20% growth in trade for the fiscal 2011-12. The government is however worried on the impact on economic conditions in Europe on trade.
Bank credit and deposit growth fell month on month with credit growth falling by 0.3% and deposit growth falling by 1.03%. Banks continued to focus on credit quality leading to credit growth slowing off.
Corporate results have shown topline growth of around 20% (leaving out oil and gas) while margins continued to fall with a contraction of around 100bps. However results of steel companies, airlines and real estate were below par with losses or sharp drop in profits from the majors. The IT sector beat estimates on the back of a weak Rupee but the guidance from majors was not very positive.
The markets seem to believe that the worst is over for the economy but on the ground date is mixed. There has to be more convincing evidence of the worst being over for the country.