How the shocking IIP nos affect job seekers and investors

Yesterday’s Index of Industrial Production (IIP) data was, no doubt, a shocker.The IIP for October contracted 5.1 percent from a year ago - the first time that has happened since June 2009.

While economists and other experts have explained how the figures represent a bright-red neon light for the economy, what do the numbers really mean for you?

[caption id=“attachment_154772” align=“alignleft” width=“380” caption=“If you’re looking for a job in the manufacturing/industrial sector, expect the going to get a little bit tougher. Photo:FlippyWhale/Flickr”]  [/caption]

Here’s our attempt to decode the impact of poor industrial output based on whether you’re a job seeker, investor, producer, borrower or shopper.

As a job seeker: Poor industrial output indicates a slump in orders and demand. Lower demand will force businesses to invest less and scale back expansion plans. That means lower hiring. So, if you’re looking for a job in the manufacturing/industrial sector, expect the going to get a little bit tougher. Lower industrial output will typically reduce demand for different kinds of services as well, so expect jobs in these sectors to be somewhat affected in the near future, if the economic situation does not improve.

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As a stock investor: The IIP numbers are very bad news for investors. Lower industrial output means lower revenues and profits (which are also getting hit by higher borrowing costs). That lowers earnings per share for investors, already depressed by the fact that Indian equities have been among the worst-performing major stock markets in the world.

A continuation of the poor IIP trend could lead to more earnings downgrades and lower stock valuations. Foreigners are also likely to be put off by the prospects of corporate earnings, and move their investments elsewhere, which could drag stock markets even lower.

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As a shopper: It’s a mixed bag here. Continuing poor demand for goods and services could prompt manufacturers to offers discounts and freebies (as we’ve seen in the automobile sector during October-November), to attract shoppers to stores. Of course, shoppers will only be inclined to splurge if they still have jobs.

As a borrower: Shrinking IIP numbers could lead the Reserve Bank of India to ease off on the policy of hiking interest rates. While it’s too early to expect interest rate cuts, the odds are high that governor D Subbarao will not increase rates after the central bank policy meeting on 16 December.

While the wholesale price index for November is still expected to come in above 9 percent on Wednesday, there are growing expectations that it will come down in the next few months, maybe to 7 percent. So, a rate ‘pause’ seems highly likely, with a cut perhaps in January or March.

As a producer/exporter: For businesses using locally-priced inputs, there might be a silver lining in terms of costs, which could come down. However, if the prices of those inputs are based on international prices, they might not be so lucky because a falling rupee will increase prices in local terms. It’s a double whammy: they have to deal with falling demand and rising costs.

Declining industrial output will also mean lower exports. Only late last week,Commerce Secretary Rahul Khullar said exports in November crawled by 3.7 percent, the lowest pace in two years.

That will increase pressure on the rupee (lower exports against higher imports, which increases demand for foreign exchange), which already dived to a new lifetime low of 53.14 against the dollar on Tuesday on the back of abysmal IIP data.