India’s industrial production likely declined slightly in January

India's industrial production data is due to be released today. In the first two quarters for FY15/16, production data was on the mend; however, slowing external demand and heavy floods in the southern part of India led to loss in momentum.

"As the impact of the floods fade, we expect Jan IP to slip by a smaller -0.5% YoY, up from Nov-Dec average of -2.4% YoY and gradually return to black this quarter", says DBS.

While manufacturing output is expected to have grown with the help of higher urban consumption, exports-oriented industries activity is likely sub-par after declining 18% y/y in export receipts in the December quarter. In Jan-February 2016, manufacturing PMIs were slightly better from the previous quarter.

Meanwhile, India's inflation data, which will be released next week, is expected to show that February's print was stable at 5.7% y/y, within the target rate of RBI. Food prices are expected to have driven the pick-up after sequential increase in certain items and pulses coming in double digits. The transport sub-component is expected to have risen on fading base effects despite low fuel prices, whereas other service sector sub-components such as education and health are likely to moderate.

Overall, policymakers are not expected to be very worried by the current price trends. However, they are expected to note that further disinflation from these levels are likely to be a challenge amid prospects of a recovery in aggregate demand conditions, bottoming-out in oil prices and  partial implementation of pay commission proposals. The recent budget was delivered on targets; therefore, there is a possibility of a rate cut in April before entering a prolonged pause.