Street disappointed with IIP numbers but industrial growth and market likely to remain bullish

Despite several negative triggers from the global arena over the past few weeks, our markets had managed to hold on to important support levels and come very close to a break out of the trading range where it has been locked for the last couple of months. However, on the announcement of IIP numbers yesterday and just after Nifty made new intraday high since May 2008, market started losing its gains as there was too much of hope and speculation built on a blockbuster IIP data.

The Industrial output in October rose by 10.3% from a year earlier which is very impressive. Nevertheless, the street was expecting close to 12.5% growth in output over the same period due to low base effect. Though the numbers are below expectation, yet the positive surprise is in Capital Goods and Infrastructure segments which have been somewhat lagging in the last few months of otherwise good IIP numbers. Further upward revision of September’s annual industrial growth rate to 9.6% from 9.1% is also an encouraging sign.

Infrastructure and Capital Good stocks have somewhat underperformed the markets in the recent past. We expect heartening IIP numbers in Manufacturing, Mining, Infrastructure and Capital Goods segments suggest the economy is maintaining a healthy growth rate. The numbers were also backed by car sales, which surged in November by 61% from a year earlier. Many of the automobile players like Hero Honda recorded highest ever monthly sales. We advise investors and traders to use declines to build long positions in stocks like L&T, BHEL, BEML, Crompton Greaves, Thermax, M&M and JP Associates with an appropriate stop loss.