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IIP growth slows sharply to 3.3% in July 2011
The pace of growth in industrial production slowed considerably in July 2011, with IIP
growth slowing to 3.3% - the slowest growth in the last 21 months. The latest IIP reading
was well below Bloomberg’s survey forecast of 6.2%. The sharp slowdown in growth can
be attributed to muted 2.3% growth in the manufacturing sector’s production and a decline
of 15.2% in the volatile capital goods sector’s production vis-à-vis 40.7% growth in July
2010.
Growth in manufacturing production, which accounts for ~75% of industrial production,
slowed considerably to 2.3% (10.3% in June 2011 and 10.8% in July 2010). In terms of
industries, 15 of the 22 industry groups in the manufacturing sector registered positive
growth during July 2011. The industry group office, accounting and computing machinery
registered the highest growth of 38.3%, followed by 18.9% in basic metals and 17.5% in
other transport equipment. On the flip side, the industry group electrical machinery and
apparatus recorded negative growth of 46.0%, followed by 12.5% in medical, precision
and optical instruments, watches and clocks. Mining production growth stood at 2.8%
(from a downwardly revised decline of 1.1% in June 2011) compared to strong 8.7%
growth in July 2010. Pace of the electricity sector’s industrial production remained healthy,
registering growth of 13.1% as compared to 7.9% in June 2011 and 3.7% in July 2010.
As per use-based data, basic goods recorded fastest growth in more than three years,
growing by healthy 10.0% vis-à-vis 4.5% in July 2010 and 7.5% in June 2011. Both,
capital goods and intermediate goods registered declines in industrial production. The
volatile and lumpy capital goods sector’s production declined by 15.2% partly on account
of high base effect of a) 38.2% yoy growth in June 2011 and b) 40.7% growth in July
2010.
The 12-month rolling IIP growth has been on a declining trend since November 2010,
down from 9.9% in November 2010 to 7.0% as of July 2011. Rising global growth
concerns and declining fiscal stimulus measures in developed economies (on concerns of
expanding fiscal deficits and unsustainable public debt to GDP) are likely to keep
commodity and energy prices in check at least in the short term. Moreover, with global
commodity prices and energy having cooled off in the past month and clearly visible
slowdown on the domestic growth front, we believe there is now an increasingly distinct
possibility that there may not be any more rate hikes from the Central Bank. Although
recent indications from the RBI suggest another 25bp hike in the repo rate in the upcoming
monetary policy review, there is an increasing likelihood that the RBI may pause after that
hike.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IIP growth slows sharply to 3.3% in July 2011
The pace of growth in industrial production slowed considerably in July 2011, with IIP
growth slowing to 3.3% - the slowest growth in the last 21 months. The latest IIP reading
was well below Bloomberg’s survey forecast of 6.2%. The sharp slowdown in growth can
be attributed to muted 2.3% growth in the manufacturing sector’s production and a decline
of 15.2% in the volatile capital goods sector’s production vis-à-vis 40.7% growth in July
2010.
Growth in manufacturing production, which accounts for ~75% of industrial production,
slowed considerably to 2.3% (10.3% in June 2011 and 10.8% in July 2010). In terms of
industries, 15 of the 22 industry groups in the manufacturing sector registered positive
growth during July 2011. The industry group office, accounting and computing machinery
registered the highest growth of 38.3%, followed by 18.9% in basic metals and 17.5% in
other transport equipment. On the flip side, the industry group electrical machinery and
apparatus recorded negative growth of 46.0%, followed by 12.5% in medical, precision
and optical instruments, watches and clocks. Mining production growth stood at 2.8%
(from a downwardly revised decline of 1.1% in June 2011) compared to strong 8.7%
growth in July 2010. Pace of the electricity sector’s industrial production remained healthy,
registering growth of 13.1% as compared to 7.9% in June 2011 and 3.7% in July 2010.
As per use-based data, basic goods recorded fastest growth in more than three years,
growing by healthy 10.0% vis-à-vis 4.5% in July 2010 and 7.5% in June 2011. Both,
capital goods and intermediate goods registered declines in industrial production. The
volatile and lumpy capital goods sector’s production declined by 15.2% partly on account
of high base effect of a) 38.2% yoy growth in June 2011 and b) 40.7% growth in July
2010.
The 12-month rolling IIP growth has been on a declining trend since November 2010,
down from 9.9% in November 2010 to 7.0% as of July 2011. Rising global growth
concerns and declining fiscal stimulus measures in developed economies (on concerns of
expanding fiscal deficits and unsustainable public debt to GDP) are likely to keep
commodity and energy prices in check at least in the short term. Moreover, with global
commodity prices and energy having cooled off in the past month and clearly visible
slowdown on the domestic growth front, we believe there is now an increasingly distinct
possibility that there may not be any more rate hikes from the Central Bank. Although
recent indications from the RBI suggest another 25bp hike in the repo rate in the upcoming
monetary policy review, there is an increasing likelihood that the RBI may pause after that
hike.
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