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IIP growth at 3.7%; policy rates may remain unchanged
Following a sharp dip, the manufacturing sector growth improved 3.3% in Jan
2011 on the back of a stronger sequential rise of 3.3%. Overall IIP growth,
inclusive of manufacturing, mining and electricity at 3.7% YoY was backed by
stronger support from electricity generation which grew 10.5% with mining at
1.6% and manufacturing at 3.3%. While capital goods sector contracted 18.6%
YoY in Jan 2011 it was more than compensated by stronger performance from
consumer goods at 11.3%. Metal products, machinery, transport equipment and
other manufacturing segments grew at -3.4%. The small rise from Dec 2010 lows in
IIP growth is in line with our view that the worst over, but it is unlikely to be
substantially better going forward. We believe the less than long term average
growth and recent easing of food inflation will prompt RBI to keep policy rates
unchanged in its March 2011 monetary policy announcement.
Manufacturing growth picks up to 3.3% from the Dec low of 2%: Following the sharp dip
manufacturing sector growth improved 3.3% in Jan 2011 on the back of a stronger
sequential rise of 3.3% than long term average. The 17 sector disaggregation however
shows considerable dispersion: Steep contractions of 34.4% YoY in metal products & parts
(ex machinery), 22.2% in wood & wood products and 6.8% YoY in machinery & equipments
and steep 772.6% YoY bounce in jute & other vegetable fibers, 39% in other manufacturing
industries and 27% in leather products.
Overall IIP growth, inclusive of manufacturing, mining and electricity at 3.7% YoY was
backed by stronger support from electricity generation which grew by 10.5% compared to
mining at 1.6% and manufacturing at 3.3%. Critical thing however is the fact that coal
production for the month has been weak at -1.2% and has remained subdued at 0.8% for
FY11 YTD. Since a major part of electricity generation comes from thermal sources weak coal
production and high electricity generation are inconsistent.
User based classification shows that while capital goods sector contracted 18.6% YoY in Jan
2011 it was more than compensated by stronger performance from consumer goods at
11.3%. We finally see strong recovery in consumer non-durables at 6.9% even as durables
continued with robust growth of 23.3%. Basic and intermediate goods at 7.6% and 7.9%
respectively showed steady growth.
Big Four contracted 3.4% YoY: A break-up of the manufacturing sector shows that the
“Big four” sectors comprising metal products, machinery, transport equipment and other
manufacturing, weighing 24% in the manufacturing index, grew at -3.4%. Large volatility in
these components was behind the volatility in the IIP growth numbers for FY11. The “other”
sectors weighing 76% in manufacturing index have shown continued improvement with a
growth of 7.3% in Jan 2011.
Outlook –Dec was possibly the worst, but growth to remain sub-par: The small rise from
Dec 2010 lows in IIP growth is in line with our view that the worst print is possibly behind us,
but is unlikely to be substantially better, going forward. The key issue is that manufacturing
sector inflation has continued to fall to 3.7% (Jan 2011) while inflation for raw material
components has remained high (20-25%), thereby causing severe margin pressure. The
combination of rising costs, implications from high oil prices and rising rates are the risk
factors for future growth.
Monetary policy – Expect no rate hike in the forthcoming policy announcement: We
believe the combination of less than long term average growth and recent easing of food
inflation will prompt RBI to keep policy rates unchanged in the March 2011 monetary policy
announcement.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IIP growth at 3.7%; policy rates may remain unchanged
Following a sharp dip, the manufacturing sector growth improved 3.3% in Jan
2011 on the back of a stronger sequential rise of 3.3%. Overall IIP growth,
inclusive of manufacturing, mining and electricity at 3.7% YoY was backed by
stronger support from electricity generation which grew 10.5% with mining at
1.6% and manufacturing at 3.3%. While capital goods sector contracted 18.6%
YoY in Jan 2011 it was more than compensated by stronger performance from
consumer goods at 11.3%. Metal products, machinery, transport equipment and
other manufacturing segments grew at -3.4%. The small rise from Dec 2010 lows in
IIP growth is in line with our view that the worst over, but it is unlikely to be
substantially better going forward. We believe the less than long term average
growth and recent easing of food inflation will prompt RBI to keep policy rates
unchanged in its March 2011 monetary policy announcement.
Manufacturing growth picks up to 3.3% from the Dec low of 2%: Following the sharp dip
manufacturing sector growth improved 3.3% in Jan 2011 on the back of a stronger
sequential rise of 3.3% than long term average. The 17 sector disaggregation however
shows considerable dispersion: Steep contractions of 34.4% YoY in metal products & parts
(ex machinery), 22.2% in wood & wood products and 6.8% YoY in machinery & equipments
and steep 772.6% YoY bounce in jute & other vegetable fibers, 39% in other manufacturing
industries and 27% in leather products.
Overall IIP growth, inclusive of manufacturing, mining and electricity at 3.7% YoY was
backed by stronger support from electricity generation which grew by 10.5% compared to
mining at 1.6% and manufacturing at 3.3%. Critical thing however is the fact that coal
production for the month has been weak at -1.2% and has remained subdued at 0.8% for
FY11 YTD. Since a major part of electricity generation comes from thermal sources weak coal
production and high electricity generation are inconsistent.
User based classification shows that while capital goods sector contracted 18.6% YoY in Jan
2011 it was more than compensated by stronger performance from consumer goods at
11.3%. We finally see strong recovery in consumer non-durables at 6.9% even as durables
continued with robust growth of 23.3%. Basic and intermediate goods at 7.6% and 7.9%
respectively showed steady growth.
Big Four contracted 3.4% YoY: A break-up of the manufacturing sector shows that the
“Big four” sectors comprising metal products, machinery, transport equipment and other
manufacturing, weighing 24% in the manufacturing index, grew at -3.4%. Large volatility in
these components was behind the volatility in the IIP growth numbers for FY11. The “other”
sectors weighing 76% in manufacturing index have shown continued improvement with a
growth of 7.3% in Jan 2011.
Outlook –Dec was possibly the worst, but growth to remain sub-par: The small rise from
Dec 2010 lows in IIP growth is in line with our view that the worst print is possibly behind us,
but is unlikely to be substantially better, going forward. The key issue is that manufacturing
sector inflation has continued to fall to 3.7% (Jan 2011) while inflation for raw material
components has remained high (20-25%), thereby causing severe margin pressure. The
combination of rising costs, implications from high oil prices and rising rates are the risk
factors for future growth.
Monetary policy – Expect no rate hike in the forthcoming policy announcement: We
believe the combination of less than long term average growth and recent easing of food
inflation will prompt RBI to keep policy rates unchanged in the March 2011 monetary policy
announcement.
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