Industrial Production growth much lower than expected @ 5.8% in May 2011::Emkay

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Industrial Production growth much lower than expected @ 5.8% in May 2011

The index of industrial production (IIP) grew by 5.6% in May-11(as per new series) significantly lower than market expectations of 8.6% led by lower growth in manufacturing. The manufacturing grew by just 5.6%yoy as against 8.9% in corresponding month last year and 6.3% in the preceding month. Moreover growth in mining continues to remain sluggish at 1.4%. However electricity reported higher growth of 10.3%yoy as against ~6.5% growth in preceding month and corresponding month last year.

In terms of industries, fourteen out of the twenty two industry groups in the manufacturing sector have shown positive yoy growth during the month of May 2011. The industry group ‘Medical, precision & optical instruments, watches and clocks’ has shown the highest growth of 42.9%, followed by 36.4% in ‘Office, accounting & computing machinery’ and 23.1% in ‘Motor vehicles, trailers & semi-trailers’. On the other hand, the industry groups ‘Textiles’ and ‘Wood and products of wood & cork except furniture; articles of straw & plating materials’ have shown the highest negative growth of 6.6% each.

The growth in capital goods came down to 5.9% in May 2011 from 7.3% in April 2011 and 15.8% in May 2010. Despite moderating industrial production we still expect the RBI to continue with rate hikes as inflation still remains significantly above the RBI’s comfort zone.