IIP slowdown spooks markets

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The Index of Industrial Production (IIP) declined 5.2% in October. This was first time since June 2009 that IIP fell into the red zone. Manufacturing, mining and capital goods sectors led to the fall in the index. The Indian stock market reacted badly to this news and as a consequence sunk deep into the red. Sell off in heavyweights across indices led the markets to close well below the dotted line. While the BSE-Sensex closed lower by around 343 points (down 2.1%), the NSE-Nifty closed lower by around 102 points (down 2.1%). The smaller indices albeit still at a loss, fared slightly better. The BSE Mid Cap and BSE Small Cap also lost around 0.9% each. Stocks from the engineering and auto sectors were the top losers. All indices closed the day in the red.

As regards global markets, Asian indices closed mixed today while the European indices have opened in the red. The rupee was trading at Rs 52.61 to the dollar at the time of writing.

The UID project started off with great promise with the noble mission of giving each and every one of India's citizens a unique ID. It is estimated to offer IT companies a Rs 150 bn - 200 bn opportunity. This includes building an entire project ecosystem, biometrics, databases, smartcards, storage, system integration etc. However the parliament committee has stated that the project might prove to be too expensive and may also lead to some duplicity of data. Thus, it is unclear whether the project will be shelved or watered down. Wipro has won some contracts for supplying hardware and software and MindTree has won a contract for application software development, maintenance and support. Tata Consultancy Services (TCS), Satyam and HCL Infosystems have also won other contracts. Tech companies may thus see some delay in government spends and project execution.

FMCG companies are adopting various measures to help protect their margins as the slowing economy, reducing pricing power and sticky inflation continue to take its toll on consumers. Various methods which these companies are undertaking include input substitution, managing overheads and rationalising personnel. Firms are also looking at local sourcing of inputs on account of the high rupee-dollar exchange rate currently. Recently Britannia Industries asked 42 employees to leave the firm citing underperformance as a reason for the layoffs. During a slowdown additional pressure is heaped on employees to meet their targets and for firms to maintain their margins.