India's December industrial production dipped 0.6%

It's way below market expectations.

According to Nomura, industrial production (IP) contracted by 0.6% y-o-y in December following a downwardly revised -0.8% y-o-y in November, below expectations (Consensus: 1.0%; Nomura: 0.9%). 

Except for basic goods, all use-based segments registered negative growth with a particularly sharp fall in consumer goods output growth.

While industrial output growth was suppressed in November due to the Diwali festival-related reduction in working days, a similar contraction in December (without the adverse base effect) suggests that the underlying momentum in industrial activity likely weakened in December.

Here's more from Nomura:

To adjust for the Diwali effect, we compare the growth rate in December with the average growth in Oct-Nov. This suggests that there has been a large contraction in consumer durable goods output growth, suggesting that demand is unable to hold up after the festive season.

Likewise, capital goods output continued to print negative growth, suggesting investment activity remains dormant. Elsewhere, while basic goods output posted positive growth, intermediate goods output growth (a lead indicator of industrial activity) contracted.

The contraction in intermediate goods, which had been picking up in recent months, suggests that final demand, after a brief rise, has moderated again. On the supply side, manufacturing sector output growth fell to -0.7% y-o-y from an average of 4.5% in Oct-Nov mainly due to a sharp fall in growth in clothing, radio, TV and communication equipment, motor vehicles and other transport equipment categories.

Mining output growth also remained in negative territory because of the clampdown on mining activity. Lastly, electricity output growth picked up marginally in December compared with the Oct-Nov period but remains weak in our view.

Overall, today's data suggest that while the industrial cycle likely bottomed out in Q3 2012, this is turning out to be a prolonged bottoming-out process.

This is not surprising as apart from weak investment and external demand, recent fiscal consolidation efforts of the government will also hit consumer demand.

As such, we do not expect a quick growth recovery in India. Today's lower-than-expected IP reading also suggests that there is a downside risk to our GDP growth forecast of 5.1% in Q4 2012 (5.3% in Q3 2012, data out on 28 February) and that the advance GDP estimates for FY13 (at 5%) may not get revised much.