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June’s headline IP (Industrial Production) growth of 8.8% was significantly above market
expectations of 5.5%; this suggests the RBI may hike rates by another 25-50 bp.
June IIP headline growth of 8.8% vs. Bloomberg consensus of 5.5%
Yoy IIP (Index of Industrial Production) growth accelerated to 8.8% in May 2011 from the
7.4% recorded a year earlier and an upward revised 5.9% in May 2011 (from 5.6% earlier).
Looking at the sectoral components, mining IIP grew at 0.6% yoy, electricity IIP at 7.9% and
manufacturing IIP at 10.0%.
Rebounding capital goods growth drove the surprise
The volatile capital goods component seems to have driven the upside surprise in the
headline IIP numbers. In June, capital goods IIP growth of 37.7% was significantly higher than
the headline index growth of 8.8% (in May, capital goods IIP growth was 6.1% versus
headline IIP growth of 5.9%). Capital goods IIP growth accelerated from an upward revised
6.1% in May 2011, and compared to 3.7% in June 2010.
Looking at the other use-based components, basic goods IIP yoy growth was 7.5%,
intermediate goods was 1.9% and consumer goods was 1.6%.
The yoy growth in the 3 month moving average of the headline IIP was 6.8% for June 2011,
down from 9.6% in June 2010 and 7.9% in March 2011.
Consumer goods growth was weak at 1.6%
Consumer goods growth of 1.6% in June 2011 was down from 13.3% a year earlier and 6.6%
in May.
Both durable and non durable consumer goods growth decelerated significantly. Durables
growth was only 1%, down from 21.3% a year earlier and 5.2% in May.
Meanwhile, non durables growth also slowed to 2.1% from 7.5% a year earlier and 7.9% in
May.
Mixed messages from RBI policy perspective
The strong June IIP numbers do partially dispel the notion that RBI’s rate hikes have
significantly crimped overall growth though consumer goods numbers suggest that domestic
consumption is being impacted. However, the monthly IIP numbers have been volatile, and
are only one input into the RBI’s decision making data. The RBI frames its policy based on
three buckets a) economic data, and its own models and forecasts, b) surveys on industrial
outlook, credit conditions and inflation expectations, and c) consultations with key
stakeholders.
On a quarterly basis, IIP growth has decelerated to 6.8% in June 2011, down from 9.6% in
June 2010 and 7.9% in March 2011.
The most recent RBI surveys on households’ inflation expectations and industrial outlook
were released yesterday with RBI’s August bulletin. The household survey suggests inflation
expectations are getting broad based across different product groups. However, the industrial
outlook survey suggests a moderation in corporate pricing power, with muted expectations for
increases in selling prices and profit margins.
We continue to think RBI will raise policy rates by another 25-50 basis points barring
significant additional deterioration in the global environment.
Bullish markets and rate sensitives
We continue to be buyers of Indian equities as valuations have moderated and we believe
interest rates are close to peaking out. Our model portfolio is overweight interest rate
sensitive stocks (wholesale funded banks and financial institutions and autos).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
June’s headline IP (Industrial Production) growth of 8.8% was significantly above market
expectations of 5.5%; this suggests the RBI may hike rates by another 25-50 bp.
June IIP headline growth of 8.8% vs. Bloomberg consensus of 5.5%
Yoy IIP (Index of Industrial Production) growth accelerated to 8.8% in May 2011 from the
7.4% recorded a year earlier and an upward revised 5.9% in May 2011 (from 5.6% earlier).
Looking at the sectoral components, mining IIP grew at 0.6% yoy, electricity IIP at 7.9% and
manufacturing IIP at 10.0%.
Rebounding capital goods growth drove the surprise
The volatile capital goods component seems to have driven the upside surprise in the
headline IIP numbers. In June, capital goods IIP growth of 37.7% was significantly higher than
the headline index growth of 8.8% (in May, capital goods IIP growth was 6.1% versus
headline IIP growth of 5.9%). Capital goods IIP growth accelerated from an upward revised
6.1% in May 2011, and compared to 3.7% in June 2010.
Looking at the other use-based components, basic goods IIP yoy growth was 7.5%,
intermediate goods was 1.9% and consumer goods was 1.6%.
The yoy growth in the 3 month moving average of the headline IIP was 6.8% for June 2011,
down from 9.6% in June 2010 and 7.9% in March 2011.
Consumer goods growth was weak at 1.6%
Consumer goods growth of 1.6% in June 2011 was down from 13.3% a year earlier and 6.6%
in May.
Both durable and non durable consumer goods growth decelerated significantly. Durables
growth was only 1%, down from 21.3% a year earlier and 5.2% in May.
Meanwhile, non durables growth also slowed to 2.1% from 7.5% a year earlier and 7.9% in
May.
Mixed messages from RBI policy perspective
The strong June IIP numbers do partially dispel the notion that RBI’s rate hikes have
significantly crimped overall growth though consumer goods numbers suggest that domestic
consumption is being impacted. However, the monthly IIP numbers have been volatile, and
are only one input into the RBI’s decision making data. The RBI frames its policy based on
three buckets a) economic data, and its own models and forecasts, b) surveys on industrial
outlook, credit conditions and inflation expectations, and c) consultations with key
stakeholders.
On a quarterly basis, IIP growth has decelerated to 6.8% in June 2011, down from 9.6% in
June 2010 and 7.9% in March 2011.
The most recent RBI surveys on households’ inflation expectations and industrial outlook
were released yesterday with RBI’s August bulletin. The household survey suggests inflation
expectations are getting broad based across different product groups. However, the industrial
outlook survey suggests a moderation in corporate pricing power, with muted expectations for
increases in selling prices and profit margins.
We continue to think RBI will raise policy rates by another 25-50 basis points barring
significant additional deterioration in the global environment.
Bullish markets and rate sensitives
We continue to be buyers of Indian equities as valuations have moderated and we believe
interest rates are close to peaking out. Our model portfolio is overweight interest rate
sensitive stocks (wholesale funded banks and financial institutions and autos).
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