Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Quick Comment
Another Month of Weak IP Growth – Is This For Real?
Industrial production (IP) growth remained weak in
December: IP growth moderated further to 1.6%YoY in
December compared with growth of 3.6%YoY in
November (revised upwards from 2.7%YoY earlier) and
11.3%YoY in October 2010. The growth in December
was below market expectations (as per Bloomberg
survey) of 2%YoY. On a seasonally adjusted sequential
basis, the IP index was up 1% MoM (vs. -2.9% MoM in
November). On a quarterly basis, IP growth decelerated
to an average of 5.5%YoY during the quarter ended
December 2010 (QE Dec-10) from 9.1% during the QE
Sept-10.
Official data understate the underlying growth
trend: A part of the deceleration in YoY growth in
December was expected on account of last year’s high
base (index was up +3.2%MoM in December 2009).
Overall, while we expect growth to slow in the coming
months, this month’s number is clearly understating the
underlying growth trend, in our view. For instance, the
broad market revenue growth for QE Dec-10 has been
reported at 21%YoY (for the companies reported till
date) compared with 23%YoY during the QE Sept-10.
Similarly, tax revenue growth for the QE Dec-10 was
29.4% YoY vs. 23.2% YoY during the QE Sept-10. The
government is planning to launch a new improved
quality IP index with a base year of 2004-05 (vs.
1993-94 currently). We believe this will help improve the
quality of this data series.
Growth decelerated across the board: In the
manufacturing segment, growth moderated to 1%YoY
(vs. 3.2% in November). The key contributors to this
deceleration were largely machinery & equipment and
transport equipment & parts. While growth in the
electricity segment accelerated to 6% (vs. 4.6% in
November), in the mining segment it decelerated to
3.8%YoY (vs. 7.4%YoY in November).
Capital goods and consumer non-durables goods
production slowed: On the use-based classification, the
capital goods segment declined 13.7%YoY in December
partly on the high base effect, compared to +12.8%YoY in
the previous month. The slowdown was driven by weak
growth in components like computer systems & its
peripherals (- 52.2%), agricultural implements (- 49.6%),
ship building & repair (- 46.7%), insulated cables/wires all
kinds (- 42.5%) and material handling equipment in wagon
(- 35.6%) respectively. The consumer goods growth picked
up to 3.9%YoY in December compared to -2%YoY in the
previous month. Within consumer goods, the durables
segment growth accelerated sharply to 18.5%YoY vs.
4.4%YoY in November. The non-durables segment, on the
other hand, declined by a further 1.1%YoY vs. -4.6%YoY in
November led by components like cigarettes (-34.3%), hair
oil/ayurvedic hair oil (-34.2%) and rice bran oil (-31.6%).
Similarly, while growth in basic goods decelerated to
5.2%YoY (vs. 6.4% YoY in November), it accelerated in
intermediate goods to 6.6%YoY (vs. 2.3% YoY in
November).
What is our view on the growth outlook?
We recently cut our GDP growth forecasts and expect a
moderation in 2011. We expect GDP growth to decelerate
to 8.2% in F2012 (year-end March) from 8.6% estimated in
F2011. Indeed, we see downside risks to our revised
growth numbers. In the context of upside and downside
risks to growth outlook and macro imbalances, we are also
tracking the following key data points:
(a) Government’s efforts to boost private investment: A
rise in productive investment — corporate business as well
as infrastructure — is key for sustaining high GDP growth
and avoiding inflation pressures. The rise in the cost of
capital and the recent slowdown in government approvals
for projects have adversely affected corporate sentiment
with regards to investment, which was just beginning to
recover following the sharp fall during the credit crisis. We
believe the government will need to redouble its efforts to
encourage the corporate sector to invest at the aggressive
pace needed to sustain GDP growth of 8-8.5%.
(b) Inflation - Apart from weekly food and monthly overall
inflation data, we are looking at global commodity price
trends to assess additional supply side pressures. Currently,
we expect headline inflation to moderate to the 7% range in
1H2011 from the current 8.4% (as of December 2010) as
food inflation pressure reduces. Considering that it will likely
remain above the comfort zone of 5-5.5%, we believe
inflation expectations will remain high and any minor supply
shock from global commodities and/or food could increase
inflation pressures again. Our current forecasts build in an
average 2011 oil price of US$100/bbl (note, crude oil of the
Dubai light variety, which is the relevant benchmark for
India, has already increased to US$99/bbl).
(c) Inter-bank liquidity tightness - This cycle is very
different from the previous cycle. Starting point of banking
system credit-deposit ratio is already tight and short-term
rates (including bank deposit and commercial paper) are at
very high levels. In this environment, we see little room for a
further rise in inflation expectations or else cost of capital
could rise to restrictive levels. We expect recent aggressive
deposit rate hikes to help deposit growth recover.
(d) Fiscal policy and expenditure growth
announcement on February 28 - We believe that
curtailing expenditure growth to single digit levels is critical
if the government is to manage inflation risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Quick Comment
Another Month of Weak IP Growth – Is This For Real?
Industrial production (IP) growth remained weak in
December: IP growth moderated further to 1.6%YoY in
December compared with growth of 3.6%YoY in
November (revised upwards from 2.7%YoY earlier) and
11.3%YoY in October 2010. The growth in December
was below market expectations (as per Bloomberg
survey) of 2%YoY. On a seasonally adjusted sequential
basis, the IP index was up 1% MoM (vs. -2.9% MoM in
November). On a quarterly basis, IP growth decelerated
to an average of 5.5%YoY during the quarter ended
December 2010 (QE Dec-10) from 9.1% during the QE
Sept-10.
Official data understate the underlying growth
trend: A part of the deceleration in YoY growth in
December was expected on account of last year’s high
base (index was up +3.2%MoM in December 2009).
Overall, while we expect growth to slow in the coming
months, this month’s number is clearly understating the
underlying growth trend, in our view. For instance, the
broad market revenue growth for QE Dec-10 has been
reported at 21%YoY (for the companies reported till
date) compared with 23%YoY during the QE Sept-10.
Similarly, tax revenue growth for the QE Dec-10 was
29.4% YoY vs. 23.2% YoY during the QE Sept-10. The
government is planning to launch a new improved
quality IP index with a base year of 2004-05 (vs.
1993-94 currently). We believe this will help improve the
quality of this data series.
Growth decelerated across the board: In the
manufacturing segment, growth moderated to 1%YoY
(vs. 3.2% in November). The key contributors to this
deceleration were largely machinery & equipment and
transport equipment & parts. While growth in the
electricity segment accelerated to 6% (vs. 4.6% in
November), in the mining segment it decelerated to
3.8%YoY (vs. 7.4%YoY in November).
Capital goods and consumer non-durables goods
production slowed: On the use-based classification, the
capital goods segment declined 13.7%YoY in December
partly on the high base effect, compared to +12.8%YoY in
the previous month. The slowdown was driven by weak
growth in components like computer systems & its
peripherals (- 52.2%), agricultural implements (- 49.6%),
ship building & repair (- 46.7%), insulated cables/wires all
kinds (- 42.5%) and material handling equipment in wagon
(- 35.6%) respectively. The consumer goods growth picked
up to 3.9%YoY in December compared to -2%YoY in the
previous month. Within consumer goods, the durables
segment growth accelerated sharply to 18.5%YoY vs.
4.4%YoY in November. The non-durables segment, on the
other hand, declined by a further 1.1%YoY vs. -4.6%YoY in
November led by components like cigarettes (-34.3%), hair
oil/ayurvedic hair oil (-34.2%) and rice bran oil (-31.6%).
Similarly, while growth in basic goods decelerated to
5.2%YoY (vs. 6.4% YoY in November), it accelerated in
intermediate goods to 6.6%YoY (vs. 2.3% YoY in
November).
What is our view on the growth outlook?
We recently cut our GDP growth forecasts and expect a
moderation in 2011. We expect GDP growth to decelerate
to 8.2% in F2012 (year-end March) from 8.6% estimated in
F2011. Indeed, we see downside risks to our revised
growth numbers. In the context of upside and downside
risks to growth outlook and macro imbalances, we are also
tracking the following key data points:
(a) Government’s efforts to boost private investment: A
rise in productive investment — corporate business as well
as infrastructure — is key for sustaining high GDP growth
and avoiding inflation pressures. The rise in the cost of
capital and the recent slowdown in government approvals
for projects have adversely affected corporate sentiment
with regards to investment, which was just beginning to
recover following the sharp fall during the credit crisis. We
believe the government will need to redouble its efforts to
encourage the corporate sector to invest at the aggressive
pace needed to sustain GDP growth of 8-8.5%.
(b) Inflation - Apart from weekly food and monthly overall
inflation data, we are looking at global commodity price
trends to assess additional supply side pressures. Currently,
we expect headline inflation to moderate to the 7% range in
1H2011 from the current 8.4% (as of December 2010) as
food inflation pressure reduces. Considering that it will likely
remain above the comfort zone of 5-5.5%, we believe
inflation expectations will remain high and any minor supply
shock from global commodities and/or food could increase
inflation pressures again. Our current forecasts build in an
average 2011 oil price of US$100/bbl (note, crude oil of the
Dubai light variety, which is the relevant benchmark for
India, has already increased to US$99/bbl).
(c) Inter-bank liquidity tightness - This cycle is very
different from the previous cycle. Starting point of banking
system credit-deposit ratio is already tight and short-term
rates (including bank deposit and commercial paper) are at
very high levels. In this environment, we see little room for a
further rise in inflation expectations or else cost of capital
could rise to restrictive levels. We expect recent aggressive
deposit rate hikes to help deposit growth recover.
(d) Fiscal policy and expenditure growth
announcement on February 28 - We believe that
curtailing expenditure growth to single digit levels is critical
if the government is to manage inflation risks.
No comments:
Post a Comment