Economy – Industrial production ::Dismal growth on high base :: Anand Rathi

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Economy – Industrial production
Dismal growth on high base
Low single-digit industrial growth in Dec ’10 was mainly on
account of the high base effect. The major drag came from
Capital Goods, while Consumer Durables witnessed a bounce
back. We maintain FY11e IIP growth at 7.1%.

 Lowest IIP growth in over 12 years. The index of industrial
production (IIP) grew 1.6% in Dec ’10, the lowest since Nov 1998.
During Apr-Dec ’10, IIP grew 8.6%, matching growth during the
same period last year.
 Manufacturing and mining decelerates; electricity up. While
growth in both Manufacturing (+1%) and Mining (+3.8%)
considerably decelerated in Dec ’10, Electricity (+6%) registered
strong growth. Within the Manufacturing sector, industry groups
such as jute & other vegetable-fiber textiles (except cotton) and
metal products & parts (ex machinery and equipment) registered
spectacular growth of 58.6% and 21% respectively.
 Deepest fall in Capital Goods in over 17 years. Capital Goods
production in Dec ’10 declined 13.7%, the biggest fall since Mar
1993. Excluding Capital Goods, the IIP grew 5.1% in Dec ’10.
Categories such as computer system & peripherals (-52.2%),
agricultural implements (-49.6%), ship building & repair (-46.7%)
and insulated cables (-42.5%) were a major drag for Capital Goods.
 Consumer Durables bounce back. While Consumer Durables
(weight: 5.4%) saw a strong growth of 18.5% in Dec ’10, from 4.4%
in Nov ’10, growth in consumer non-durables (weight: 23.3%)
remained subdued (-1.1% in Dec ’10). The decline in consumer
non-durables was mainly owing to production of cigarettes, hair oil
and rice bran oil declining 34.3%, 34.2% and 31.6% respectively.
 Industry performance. The bleak industrial growth in Dec ’10 is
mainly due to the high base, as the IIP growth in Dec ’09 was 18%,
the highest since Apr 1995. On an m-o-m basis, the IIP witnessed a
spectacular growth of 10.3% in Dec ’10. We expect IIP growth to
remain subdued during Jan-Mar ’11 due to unfavorable base effect.
We maintain our IIP growth target for FY11e at 7.1%.
 Policy outlook. IIP growth would continue to be bleak in
remaining-FY11. The IIP contributes ~20% to the GDP; thus, it
will have some moderating impact on GDP growth. On the other
hand, controlling the high & sticky inflation has become a serious
challenge for the RBI. Hence, we expect RBI to maintain its
tightening bias on the monetary policy with two rate hikes of 25bps
each – one in the current quarter and another in the next.