There were quite a few positive data in this week, IIP grew at fastest pace in the last three years, WPI is still negative, CPI is stable, indirect tax recovery saw a strong 35.8% rise, and car sales rose for the 11th straight month.
These data indicate beginning of a recovery, but, there are issues that undermine this view. One major contributor in IIP rise was Capital Goods which is a highly volatile category and it is doubtful that it will be able to sustain a good growth rate under the current global low growth scenario. In contrast, a more stable category – consumer non-durables, grew by just 0.4%, indicating that consumers have low optimism level about economy. A more confidence building data can be the Q2 corporate results which are not encouraging so far.
Coming festival season may keep the car sales strong and may keep markets also bullish but most of the major issue that have been mentioned previously like banking sector stress, real estate over supply, corporate debt burden, infrastructure hurdles, power sector problems and poor job growth are still in the same situation. Unless these core issues begin to come out of problems, investors should remain skeptical of a recovery.