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India April industrial production: Sequentially lower suggests
weaker investment demand
The Industrial Production Index (IP) grew 4.4% yoy (old series) in April, compared to the Bloomberg
consensus expectation of 5.6% yoy and our expectation of 5.7% yoy growth. The April print was below the revised
7.8% yoy growth in March. Sequentially, IP fell by 2.8% mom, s.a. in April after a 4.8% mom, s.a. increase in the
previous month.
The government changed the base of IP from 1993-1994 to 2004-2005, and expanded coverage. The
government released a new series (base of 2004/2005) which showed a 6.3% yoy growth in April, lower than the
8.8% yoy increase in March. With the new base, IP declined by 1.5% mom, s.a. from the 2.7% mom, s.a. increase
in the previous month. The new IP index covers 695 items compared to the old index’s 538 items.
Both the new and old series suggest sharp declines across the board. With the new base, consumer goods
declined by 4% mom, s.a. after a 0.9% mom, s.a. drop in March, mainly due to a significant fall in the Consumer
Durable Goods Index. The Capital Goods Index declined by 2.7% mom, s.a. In the new series, the sequential
declines were greater for both the consumer and the capital goods indices.
Today’s IP print suggests that not only investment demand, but also consumption demand is slowing.
The May services PMI fell sharply to 55 from 59.2; non-oil imports growth decelerated to 17.0% yoy in April
against 21% yoy in March; auto sales also fell 16% yoy in May from 24% growth in April. This suggests that the
weaker IP print of April may continue in May.
Our FY12 GDP growth forecast at 7.5% is predicated on a slowdown in investment demand.
We think, however, this softer data print will not deter the Reserve Bank of India (RBI) from its primary
focus on inflation. We expect the RBI to hike policy rates by 25 bp in the June 16 meeting. However, the
weaker- than-expected output data may induce the RBI to reduce the quantum of rate hikes in the remainder of
2011. The next important data release is WPI inflation for May, on June 14, where we expect the print to be
8.7% yoy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India April industrial production: Sequentially lower suggests
weaker investment demand
The Industrial Production Index (IP) grew 4.4% yoy (old series) in April, compared to the Bloomberg
consensus expectation of 5.6% yoy and our expectation of 5.7% yoy growth. The April print was below the revised
7.8% yoy growth in March. Sequentially, IP fell by 2.8% mom, s.a. in April after a 4.8% mom, s.a. increase in the
previous month.
The government changed the base of IP from 1993-1994 to 2004-2005, and expanded coverage. The
government released a new series (base of 2004/2005) which showed a 6.3% yoy growth in April, lower than the
8.8% yoy increase in March. With the new base, IP declined by 1.5% mom, s.a. from the 2.7% mom, s.a. increase
in the previous month. The new IP index covers 695 items compared to the old index’s 538 items.
Both the new and old series suggest sharp declines across the board. With the new base, consumer goods
declined by 4% mom, s.a. after a 0.9% mom, s.a. drop in March, mainly due to a significant fall in the Consumer
Durable Goods Index. The Capital Goods Index declined by 2.7% mom, s.a. In the new series, the sequential
declines were greater for both the consumer and the capital goods indices.
Today’s IP print suggests that not only investment demand, but also consumption demand is slowing.
The May services PMI fell sharply to 55 from 59.2; non-oil imports growth decelerated to 17.0% yoy in April
against 21% yoy in March; auto sales also fell 16% yoy in May from 24% growth in April. This suggests that the
weaker IP print of April may continue in May.
Our FY12 GDP growth forecast at 7.5% is predicated on a slowdown in investment demand.
We think, however, this softer data print will not deter the Reserve Bank of India (RBI) from its primary
focus on inflation. We expect the RBI to hike policy rates by 25 bp in the June 16 meeting. However, the
weaker- than-expected output data may induce the RBI to reduce the quantum of rate hikes in the remainder of
2011. The next important data release is WPI inflation for May, on June 14, where we expect the print to be
8.7% yoy.
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