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Asia Economics Data Flash
 
June 12, 2009
Goldman SachsGlobal Economics, Commodities and Strategy ResearchPranjul Bhandari, Tushar Poddar
Goldman Sachs Global ECS Researchat
https://360.gs.com
Important disclosures appear at the back of this document
India April industrial production: A higher-than-expected up-tick
The Industrial Production Index (IP) rose 1.4% yoy in April versus a (upwardly revised) 0.8% yoy fall inMarch.
The positive IP growth was above the consensus forecast of a 0.1% yoy decline and our expectation of a0.9% yoy expansion. The monthly momentum (seasonally-adjusted) rose 1.8% mom in April versus a 0.5% momdecline in March (see Exhibit 1).
Both the capital and consumer goods indices showed sequential up-ticks.
The Capital Goods Index grew1.6% mom s.a. versus a 9.1% mom decline in March. This was in line with the Infrastructure Index, which rose4.3% yoy in April.
 
Production of consumer goods rose 0.8% mom in April versus a decline of 2.9% mom in March.However, on a yearly basis, both the capital and consumer goods indices continued to be in negative territory.
We expect a pickup in activity in 2HFY10
. Several large investment plans that were mothballed in part due toelection-related uncertainties will likely be put back in place. There are several other reasons which suggest to usthat there will be an improvement in investment demand in 2HFY10. Domestic demand indicators such as thePurchasing Manager’s Index, the Infrastructure Index and cement dispatches have shown substantial up-ticksrecently. Financial conditions have eased considerably. Historical peak-to-trough declines in the investment cyclesuggest a bottoming out in the first half of 2009, and the economy continues to have significant pent-up demandfor investment, especially in infrastructure and in affordable housing. Our GDP growth forecast for FY10 is at 5.8%with risks now to the upside.
We think monetary policy easing is at an end.
Policy rates have come down aggressively and there is excessliquidity in the system.
We expect the INR to appreciate further
 
against the USD
as the stable government andrelatively resilient domestic demand become key catalysts for foreign inflows, deleveraging pressures easingfurther and the basic balance of payments turning positive in FY10 due to the trade deficit narrowing. Our USD/INRtargets are at 47.3, 46 and 44.7 over 3, 6 and 12-month horizons.
Note: this is part of the series of data releases we cover for India, based on a comprehensive analysis of the key releases thatdrive Indian equity, rates and FX markets. Please see
Weekly Liquidity Watch: Proprietary indicators suggest a recovery in 2HFY10 
, India Views, May 4, 2009 for more details.
Exhibit 1: Industrial Production Index in a snapshot
Apr-09
Mar-09Feb-09Jan-09Dec-08Headline IP - % yoy
1.4
-0.8-0.71.0-0.2Headline IP - % mom, sa
1.8
-0.50.60.3-0.6Manufacturing IP - % yoy
0.7
-1.6-0.91.0-0.6
 
Source: Bloomberg, GS Global ECS Research.
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