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INDIA PRODUCTION – Strong
headline, weak details
A disturbing feature of India’s monthly industrial
production (IP) data has been the significant volatility
it has been exhibiting, often because of the wild
swings in the capital goods sub-sector. Now, capital
goods are by nature a volatile category but the
magnitude of its swings in recent months has been
bizarre. It is in this context that the significantly
better-than-expected IP growth of 8.8% YoY in June
appears less scintillating when it is noted that the
output of capital goods unexpectedly surged 37.7%.
It had posted average growth of 6.7% in the prior two
months. This sub-sector alone contributed a massive
5ppt to the headline 8.8% YoY increase in IP. While it
is encouraging that there is life in the capital goods
sector, the IP details ex capital goods are weak.
Manufacturing output jumped 10%, while mining
remained down in the dumps (+0.6%). Electricity
production was decent at 7.9%, although lower than
May’s 10.3%. Consumer durables rose a mere 1%
YoY, the slowest pace of increase in almost two years.
Intermediate goods (+1.8% YoY) were weak, while
the growth in the production of basic goods (+7.5%)
was largely unchanged. Basically, further moderation
in industrial activity remains in store.
Overall, the growth slowdown continues to play out.
IP growth moderated to 6.8% YoY in 2Q11 from
7.9% in 1Q11, hinting that GDP growth in 2Q11 will
moderated further - as expected - from 7.8% in 1Q11.
We maintain our FY12 GDP growth forecast of 7.5%
(RBI: 8%) but note that the worsening global demand
could create downside risk of around 0.5ppt.
The RBI will surely dig into the IP details and is
unlikely to be influenced only by the headline
number. Further, apart from the ongoing adverse
global developments and the sustainability of
softer commodity prices, the RBI’s decision on 16
September will also be influenced by two more
WPI inflation reports, another IP release and the
April-June GDP. Production and GDP data and
adverse global developments will favour a waitand-
see approach (does not mean easing). The first
inflation report (due this week) will show slightly
higher inflation due to impact of hikes in fuel
prices (supporting tightening), but the second one
for August will likely capture the positive impact
of the fall in commodity prices. There are reasons
for the RBI to tighten, but a wait-and-see approach
cannot be ruled out if the global backdrop worsens
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA PRODUCTION – Strong
headline, weak details
A disturbing feature of India’s monthly industrial
production (IP) data has been the significant volatility
it has been exhibiting, often because of the wild
swings in the capital goods sub-sector. Now, capital
goods are by nature a volatile category but the
magnitude of its swings in recent months has been
bizarre. It is in this context that the significantly
better-than-expected IP growth of 8.8% YoY in June
appears less scintillating when it is noted that the
output of capital goods unexpectedly surged 37.7%.
It had posted average growth of 6.7% in the prior two
months. This sub-sector alone contributed a massive
5ppt to the headline 8.8% YoY increase in IP. While it
is encouraging that there is life in the capital goods
sector, the IP details ex capital goods are weak.
Manufacturing output jumped 10%, while mining
remained down in the dumps (+0.6%). Electricity
production was decent at 7.9%, although lower than
May’s 10.3%. Consumer durables rose a mere 1%
YoY, the slowest pace of increase in almost two years.
Intermediate goods (+1.8% YoY) were weak, while
the growth in the production of basic goods (+7.5%)
was largely unchanged. Basically, further moderation
in industrial activity remains in store.
Overall, the growth slowdown continues to play out.
IP growth moderated to 6.8% YoY in 2Q11 from
7.9% in 1Q11, hinting that GDP growth in 2Q11 will
moderated further - as expected - from 7.8% in 1Q11.
We maintain our FY12 GDP growth forecast of 7.5%
(RBI: 8%) but note that the worsening global demand
could create downside risk of around 0.5ppt.
The RBI will surely dig into the IP details and is
unlikely to be influenced only by the headline
number. Further, apart from the ongoing adverse
global developments and the sustainability of
softer commodity prices, the RBI’s decision on 16
September will also be influenced by two more
WPI inflation reports, another IP release and the
April-June GDP. Production and GDP data and
adverse global developments will favour a waitand-
see approach (does not mean easing). The first
inflation report (due this week) will show slightly
higher inflation due to impact of hikes in fuel
prices (supporting tightening), but the second one
for August will likely capture the positive impact
of the fall in commodity prices. There are reasons
for the RBI to tighten, but a wait-and-see approach
cannot be ruled out if the global backdrop worsens
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