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NOVEMBER IIP: DRAWS BLANK; GREW BY MERELY 2.7%
Consumer Goods disappoint posting negative 3.1% growth!!
IIP grew by merely 2.7% in November against 11.3% in October (revised
upward from 10.8%). On a MoM seasonally adjusted basis growth in
November was -7.8% against 6.5% in October. Cumulatively during Apr-Nov
10 IIP growth stood at 9.6% against 7.4% in the same period last year.
IIP peaked in March, has come off a bit towards its trend level, going
forward we expect moderate improvements in IIP, as base effect benefits
wane. In our view, the economy is likely to continue on its growth
trajectory of about 9% GDP growth, and IIP shall be over 9% for the fiscal.
Inflation data for the month of December to be released on Friday would set
the tone of RBI's hawkishness. We expect WPI inflation for the month of
December to be over 8.5% vs 7.5% in November. We also expect RBI to
increase policy rates on next policy meeting on January 25th.
However, given high levels of inflation, along with tight liquidity scenario
and political impasse in parliament we believe RBI to announce measures
for liquidity easing may be through temporary CRR cut or more aggressive
government bond buying. We continue to expect further increase in policy
rates going forward, given high inflationary pressure and likely pressure
from increasing prices of global commodities. We expect benchmark yields
to strengthen towards 8.5% over the course of the fiscal.
Key highlights
The sectoral growth (use-based classification) has been as under:
n Basic goods: 4.4% (against 8.8% in October)
n Capital goods: 12.6% (against 21.5% in October)
n Intermediate goods: 2.4% (against 10.6% in October)
n Consumer goods: -3.1% (against 9.6% in September)
n Consumer durables: 4.6% (against 30.9% in October)
n Consumer non-durables: -6.0% (against 0.1% in October)
During Apr-Nov'10, Mining Index grew by 8% against 8.5% (for Apr-Nov'09),
Manufacturing Index grew by 10.2% against 7.5%, Electricity Index grew by 4.6%
against 5.7% and overall IIP grew by 9.6% against 7.4%. On use based classification,
Basic goods grew by 5.8% against 5.8%, Capital goods by 25.8% against
6.2%, intermediate goods by 9.6% against 11.3%, consumer goods by 6.9%
against 6.3%, consumer durables goods by 22.7% against 20.7%, and consumer
non-durables by 0.8% against 1.6% in Apr-Nov'09.
In terms of industries, nine out of the seventeen industry groups have shown positive
growth in the month over last year. The industry group 'Transport Equipment and
Parts' have shown the highest growth of 15.6%, followed by 12.6% in 'Leather and
Leather & Fur Products' and 9.6% in 'Other Manufacturing Industries'. On the other
hand, the industry group 'Wood and Wood Products; Furniture and Fixtures' have
shown a negative growth of 27.4% followed by 17.5% in 'Jute and other vegetable
fibre Textiles (except cotton)'.
During the current month, low growth has been observed in Intermediate goods and
Consumer non-durable goods. Important items registering highly negative growth
include 'Spun pipes' [(-) 38.2%], 'Railway/concrete sleeper' [(-) 34.9%] and 'Particle
board' [(-) 29.6%] in case of Intermediate goods and 'Rice bran oil' [(-) 57.9%] and
'Hair oil/ayurvedic hair oil' [(-) 42.5%] in case of Consumer non-durable goods.
Moreover 'Agricultural implements' [(-) 55.6%] and 'Industrial machinery' [(-)
46.7%] of Capital goods are also showing highly negative growth.
IIP on four month moving average basis peaked off in March 2010 and have come
off by over 10% during current fiscal year from year ago levels. Seasonally adjusted
IIP growth indicates sharp volatility due to volatile capital goods number. We believe
that the best of IIP in growth numbers is well behind us and going forward for next
few months IIP numbers would continue to edge lower and may disappoint if the
economic growth moderates from here on due to high base effect. The IIP numbers
for the month of October got revised upwards from 10.8% to 11.3% and we believe
that the IIP numbers for the month of November would get revised upwards significantly.
We continue to expect the IIP growth for the fiscal to be about 8.5%.
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