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The Industrial Production Index (IP) increased sharply by 8.7% yoy in June, much above the revised 5.9%
yoy (from 5.6% yoy) growth in May. The IP reading was significantly higher than the Bloomberg consensus
expectation of 5.5% yoy and our expectations of 5.9% yoy growth. Sequentially, IP rose by 1.8% mom, s.a. in
June, compared to the 1.2% mom decline in May. Despite the increase, IP witnessed a decline of 0.8% on a qoq
basis. For the first quarter of FY12, IP grew 6.8% yoy compared to 9.7% yoy growth in FY11.
Today’s upward surprise in the IP print was mainly from the usually volatile Capital Goods Index. The
Capital Goods Index rose significantly by 9.5% mom, s.a., after having negative growth for the last two months.
Sequentially, the Consumer Goods Index continued to have negative growth for the fourth consecutive month,
driven by both consumer durables and non-durables. Both consumer durables and non-durables remained anemic
and sequentially declined by 0.5% mom, s.a. and 0.8% mom, s.a. respectively.
Today’s increase in IP was unexpected after the general slow down of economic activity being seen in
India. The government recently revised its GDP growth numbers for 2011-2012 to 8.6% from 9.0%. The past hikes
of the Reserve Bank of India (RBI) have begun to and will increasingly show up in future data releases of the IP—
barring the surprise this time.
In this context, the economy has been experiencing a slowdown in interest-rate sensitive sectors, worsened by
rising input prices. The July manufacturing PMI fell to 53.6 from 55.3 in June and 57.5 in May. Out of the
components of the PMI, new export orders and quantity of purchases declined the most. Passenger car sales fell
by 16% yoy in July. Credit growth was at 19.2% yoy in June.
We have recently revised our FY12 GDP growth numbers to 7.3% from 7.5%. We continue to expect the RBI to
not raise rates in FY12 having surprised the market already with its anti-inflationary stance. After the recent
move, which put the RBI ahead of the curve, we believe it is likely to cut rates next fiscal year by 100 bp. Also,
the recent volatility in global markets increases the probability that the RBI will not increase rates any further
(see The Reserve Bank of India—hikes done for now, Asia Policy Watch, July 26, 2011). The next important
data release is WPI inflation for July on August 16, where we expect the print to be 9.3% yoy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Industrial Production Index (IP) increased sharply by 8.7% yoy in June, much above the revised 5.9%
yoy (from 5.6% yoy) growth in May. The IP reading was significantly higher than the Bloomberg consensus
expectation of 5.5% yoy and our expectations of 5.9% yoy growth. Sequentially, IP rose by 1.8% mom, s.a. in
June, compared to the 1.2% mom decline in May. Despite the increase, IP witnessed a decline of 0.8% on a qoq
basis. For the first quarter of FY12, IP grew 6.8% yoy compared to 9.7% yoy growth in FY11.
Today’s upward surprise in the IP print was mainly from the usually volatile Capital Goods Index. The
Capital Goods Index rose significantly by 9.5% mom, s.a., after having negative growth for the last two months.
Sequentially, the Consumer Goods Index continued to have negative growth for the fourth consecutive month,
driven by both consumer durables and non-durables. Both consumer durables and non-durables remained anemic
and sequentially declined by 0.5% mom, s.a. and 0.8% mom, s.a. respectively.
Today’s increase in IP was unexpected after the general slow down of economic activity being seen in
India. The government recently revised its GDP growth numbers for 2011-2012 to 8.6% from 9.0%. The past hikes
of the Reserve Bank of India (RBI) have begun to and will increasingly show up in future data releases of the IP—
barring the surprise this time.
In this context, the economy has been experiencing a slowdown in interest-rate sensitive sectors, worsened by
rising input prices. The July manufacturing PMI fell to 53.6 from 55.3 in June and 57.5 in May. Out of the
components of the PMI, new export orders and quantity of purchases declined the most. Passenger car sales fell
by 16% yoy in July. Credit growth was at 19.2% yoy in June.
We have recently revised our FY12 GDP growth numbers to 7.3% from 7.5%. We continue to expect the RBI to
not raise rates in FY12 having surprised the market already with its anti-inflationary stance. After the recent
move, which put the RBI ahead of the curve, we believe it is likely to cut rates next fiscal year by 100 bp. Also,
the recent volatility in global markets increases the probability that the RBI will not increase rates any further
(see The Reserve Bank of India—hikes done for now, Asia Policy Watch, July 26, 2011). The next important
data release is WPI inflation for July on August 16, where we expect the print to be 9.3% yoy.
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