7.4% new IIP FY12 growth, 7.8% GDP growth:: BofA Merrill Lync

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


7.4% new IIP FY12 growth,
7.8% GDP growth  
4.4% (6.3% new base) April 2011 IIP growth
Actual:         4.4%
Previous:     7.3%
Consensus: 5.5%
BofAML:     5.0%
Bottom line: 7.4% new IIP FY12 growth, 7.8% GDP growth
„ We have marginally hiked our FY12 growth forecast by 20bp to 7.8%. This is
driven by a 100bp increase in our industrial growth forecast to 7.4% after the
government introduced a new index of industrial production (base: 2004-05)
to replace the existing series (base: 1993-94). This, in turn, is because the
strong base effect that recently pulled down industrial growth in the 1993-94
series has been diluted in the 2004-05 series. 1H10 industrial growth has
slipped to 11.8% in the 2004-05 series from 13.6% in the 1993-94 series.
This partly explains why 1Q11 industrial growth has climbed to 7.6% in 2004-
05 series from 5% in the 1993-94 series. On a 1993-94 basis, April industrial
growth, at 4.4%, came in below our 5% and the market’s 5.5% expectations.
On a 2004-05 basis, however, it was higher at 6.3%, essentially because of
lower base effects. This will likely also push up industrial numbers in 2Q11.

Why it matters: 25bp RBI rate hike on June 16
„ We continue to expect the RBI to hike 25bp on June 16 (and 75bp by
October) to contain inflation expectations. Although growth is slowing, it
should not slip much below the 8% potential for FY12 as a whole. In fact, the
upward revision in industrial numbers should end up pushing March quarter
growth to 8.2% from 7.8%.  Despite better than earlier expected industrial
numbers for now, we have built in a slowdown in industrial growth and overall
growth in 2HFY12 on rising lending rates. Charts 1-2 present our monthly
industrial growth forecasts. Even so, we still do not expect growth to slip
below 7.5% levels unless there is either a US double dip – not our house view
– or a bad monsoon. Please find our slowdown stress test report here.
Details: New 2004-05 index of industrial production    
„ We have tweaked up our FY12 growth forecast by 20bp to 7.8% after a
‘statistical’ upward revision in industrial growth (Table 2 and Chart 3).
„ The government today released a new index of industrial production (with
base 2004-05) replacing the existing one with 1993-94 base. From a mediumterm perspective, both the series grew 9% since 2004-05 (Chart 2).  
„ The 2004-5 IIP series has increased the weight of mining (14.2% from 10.5%
in the 1993-94 base) at the cost of manufacturing (75.5% from 79.4%) (Table
3). Electricity will broadly carry the same weight of 10.3%. Manufacturing will
now be disaggregated into 22 sectors from 17 earlier (Table 4). Reflecting the
structural changes in the production profile, computers, telecommunications

and autos have entered the index of industrial production.  
„ The growth rates of the three components – mining, manufacturing and
electricity – are broadly the same across the two series over time (Charts 4-
6).
„ In use-based terms, basic goods and intermediate goods production slowed
down somewhat in the 2004-05 series (Charts 7-8).
„ Capital goods production (9.3% of IIP) accelerated to 21% in the 2004-05
series from 16.9% in the 1993-94 series (Chart 9).  
„ Consumer goods (28.7% of IIP) also picked up to 10.3% in the 2004-05
series from 7.2% in the 1993-94 series (Charts 10-12). This was driven by a
higher production of consumer durables vis a vis consumer non-durables.
Next up in India: 8.7% May WPI inflation  
India: Wholesale Price Index (May), Tuesday, 14 June 2011.