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India Equity Research Reports, IPO and Stock News
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Economy
Industrial Production
January IIP: Muted but resilient. IIP growth for January at 3.7% was above
consensus expectations of 2.9% and our expectation of 2.6%. Manufacturing growth
came in at 3.3%. On the use-based classification, one of the drivers for this was the
strong consumer durables sector. Capital goods sector continued to remain subdued
(and volatile) with a contraction of 18.6%. December IIP growth was revised up to
2.5% from 1.6%.
Industrial production growth remains low
Manufacturing sector in January grew at 3.3% (0.4% mom). December had seen a 2% rise in
manufacturing production with at least 9 of the 17 sub-sectors growing by double digits over the
month. The internals for January suggest that growth has not been as robust on a mom basis as
December. Growth over the month in sectors like ‘Metal products’ (January at (-)14.9%), ‘Leather
and leather products’ (2.8%) and ‘Textile products’ (0.5%) dropped significantly compared to
December. Even then we believe that the growth in manufacturing remains resilient. There is still
significant base effect coming from the year ago and growth in the index has been above the
seasonality effect. Mining sector grew by 1.6%; though on a mom basis it contracted by 0.3%.
This was indicative as coal mining in January, as indicated by core sector data, had contracted by
1.7% on a yoy basis. Electricity production at 10.5% was higher than indicated in the core sectors
data which showed a growth of 9.3%.
Consumer durables continue to pull up IIP; capital goods continue to slow down
Consumer durables sector continued to show a robust performance as it expanded by 23.3%
(7.8% growth mom). Passenger car sales, which is a significant part of the consumer durables,
have shown steady growth over the past few months. This has been a positive for the consumer
durables segment. We expect the same to continue into February with car sales having expanded
about 22%. Consumer non-durables growth at 6.9% turned positive after a couple of months of
negative growth. Overall, consumer goods sector with some support from favorable base effects
expanded by 11.3%. Basic goods and intermediates goods sectors also grew by 7.6% and 7.9%,
respectively. Capital goods production continued to remain weak as it contracted by 18.6%
(contracted by 8.6% mom).
RBI rate hikes to continue regardless of IIP growth
With inflation management as the major concern, we expect the RBI to continue with its series of
rate hikes regardless of the low single-digit IIP growth. FYTD growth for IIP is still strong at 8.3%
with IIP ex-capital growth in January at 9.1%. Inflation on the other hand has continued to remain
a concern. Food inflation has come down sharply over February but the general inflation is still
above the comfort level of the RBI. We expect February inflation due on Monday to come in at
7.79%. This raises the probability of a rate hike of 25 bps by the RBI in the March 17 meeting so
that the policy momentum continues. The RBI is also likely to keep an eye on the global scenario
and the outflow from the emerging markets which might be a concern in the near to medium
term; prompting it to raise rates in the quarterly meeting due in May. We continue to see 75-100
bps hike in rates till end-FY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Industrial Production
January IIP: Muted but resilient. IIP growth for January at 3.7% was above
consensus expectations of 2.9% and our expectation of 2.6%. Manufacturing growth
came in at 3.3%. On the use-based classification, one of the drivers for this was the
strong consumer durables sector. Capital goods sector continued to remain subdued
(and volatile) with a contraction of 18.6%. December IIP growth was revised up to
2.5% from 1.6%.
Industrial production growth remains low
Manufacturing sector in January grew at 3.3% (0.4% mom). December had seen a 2% rise in
manufacturing production with at least 9 of the 17 sub-sectors growing by double digits over the
month. The internals for January suggest that growth has not been as robust on a mom basis as
December. Growth over the month in sectors like ‘Metal products’ (January at (-)14.9%), ‘Leather
and leather products’ (2.8%) and ‘Textile products’ (0.5%) dropped significantly compared to
December. Even then we believe that the growth in manufacturing remains resilient. There is still
significant base effect coming from the year ago and growth in the index has been above the
seasonality effect. Mining sector grew by 1.6%; though on a mom basis it contracted by 0.3%.
This was indicative as coal mining in January, as indicated by core sector data, had contracted by
1.7% on a yoy basis. Electricity production at 10.5% was higher than indicated in the core sectors
data which showed a growth of 9.3%.
Consumer durables continue to pull up IIP; capital goods continue to slow down
Consumer durables sector continued to show a robust performance as it expanded by 23.3%
(7.8% growth mom). Passenger car sales, which is a significant part of the consumer durables,
have shown steady growth over the past few months. This has been a positive for the consumer
durables segment. We expect the same to continue into February with car sales having expanded
about 22%. Consumer non-durables growth at 6.9% turned positive after a couple of months of
negative growth. Overall, consumer goods sector with some support from favorable base effects
expanded by 11.3%. Basic goods and intermediates goods sectors also grew by 7.6% and 7.9%,
respectively. Capital goods production continued to remain weak as it contracted by 18.6%
(contracted by 8.6% mom).
RBI rate hikes to continue regardless of IIP growth
With inflation management as the major concern, we expect the RBI to continue with its series of
rate hikes regardless of the low single-digit IIP growth. FYTD growth for IIP is still strong at 8.3%
with IIP ex-capital growth in January at 9.1%. Inflation on the other hand has continued to remain
a concern. Food inflation has come down sharply over February but the general inflation is still
above the comfort level of the RBI. We expect February inflation due on Monday to come in at
7.79%. This raises the probability of a rate hike of 25 bps by the RBI in the March 17 meeting so
that the policy momentum continues. The RBI is also likely to keep an eye on the global scenario
and the outflow from the emerging markets which might be a concern in the near to medium
term; prompting it to raise rates in the quarterly meeting due in May. We continue to see 75-100
bps hike in rates till end-FY2012E.
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