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INDIA PRODUCTION – Mind the
volatility
India’s July industrial production (IP) rose 3.3% YoY
(June: 8.8%), lower than consensus (6.2%) and
CLSA (5%) expectations. However, as has been the
case in recent months, the IP data don’t give a
reliable picture of the ongoing economic activity, due
partly to the excessive volatility in the capital goods
segment. Additionally, this time IP also had to fight
last year’s high base (July 2010: 10% YoY).
Just as June’s above-forecast IP growth of 8.8% YoY
did not signal any pickup in industrial activity, the
latest July IP does not suggest a more dramatic
downshift than what was already assumed before the
data. Indeed, the output of capital goods, which had
surged 38.2% YoY in June, reversed to post a decline
of 15.2% in July (July 2010: 40.7%). Electricity
machinery, which had jumped 89.5% YoY in June,
plunged 46% in July, raising some serious doubts
about the quality of the time series
Both manufacturing (2.3% YoY) and mining (2.8%)
were affected by last year’s high base but electricity
production jumped 13.1% in July (the base effect was
not an issue). Intermediate goods (-1.1% YoY)
declined for the first time since mid-2009 and
corroborate other evidence of further moderation in
economic activity. The output of consumer durables
unexpectedly jumped 8.6% YoY in July.
Interestingly, the recent pickup in domestic
commercial vehicle sales supports the view that IP
data exaggerate the pace of deceleration. On a 3mma
basis, domestic sales of commercial vehicles actually
rose 21.4% YoY in August, steadily gaining from
11.7% in April. However, growth is poised to ease as
demand softens and the diesel price hike is passed on.
The RBI probably does not rely significantly on the
IP data given the recent volatility. Overall, the IP
data exaggerate the pace of deceleration.
Moderation in growth is precisely what monetary
tightening is meant to achieve in order to check
inflation, although government’s policy paralysis
also has a meaningful role to play in this
deceleration. The RBI’s main focus will remain on
checking inflation, which continues to be
uncomfortably high. Indeed, WPI inflation probably
increased to 9.7% YoY in August (July: 9.2%) –
hardly an outcome for the RBI to switch off just yet.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA PRODUCTION – Mind the
volatility
India’s July industrial production (IP) rose 3.3% YoY
(June: 8.8%), lower than consensus (6.2%) and
CLSA (5%) expectations. However, as has been the
case in recent months, the IP data don’t give a
reliable picture of the ongoing economic activity, due
partly to the excessive volatility in the capital goods
segment. Additionally, this time IP also had to fight
last year’s high base (July 2010: 10% YoY).
Just as June’s above-forecast IP growth of 8.8% YoY
did not signal any pickup in industrial activity, the
latest July IP does not suggest a more dramatic
downshift than what was already assumed before the
data. Indeed, the output of capital goods, which had
surged 38.2% YoY in June, reversed to post a decline
of 15.2% in July (July 2010: 40.7%). Electricity
machinery, which had jumped 89.5% YoY in June,
plunged 46% in July, raising some serious doubts
about the quality of the time series
Both manufacturing (2.3% YoY) and mining (2.8%)
were affected by last year’s high base but electricity
production jumped 13.1% in July (the base effect was
not an issue). Intermediate goods (-1.1% YoY)
declined for the first time since mid-2009 and
corroborate other evidence of further moderation in
economic activity. The output of consumer durables
unexpectedly jumped 8.6% YoY in July.
Interestingly, the recent pickup in domestic
commercial vehicle sales supports the view that IP
data exaggerate the pace of deceleration. On a 3mma
basis, domestic sales of commercial vehicles actually
rose 21.4% YoY in August, steadily gaining from
11.7% in April. However, growth is poised to ease as
demand softens and the diesel price hike is passed on.
The RBI probably does not rely significantly on the
IP data given the recent volatility. Overall, the IP
data exaggerate the pace of deceleration.
Moderation in growth is precisely what monetary
tightening is meant to achieve in order to check
inflation, although government’s policy paralysis
also has a meaningful role to play in this
deceleration. The RBI’s main focus will remain on
checking inflation, which continues to be
uncomfortably high. Indeed, WPI inflation probably
increased to 9.7% YoY in August (July: 9.2%) –
hardly an outcome for the RBI to switch off just yet.
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