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Industrial output in August was unsurprisingly uninspiring yet again. At an aggregate level,
industrial output rose 4.1% yoy (July: 3.8% yoy). Growth in the manufacturing sub-sector was
4.5% yoy compared with 3.1% yoy. Barring one month, we have now had a full year of sub-10%
yoy growth.
The change this month was weaker consumer goods production (Figure 2 below). Consumer
goods production eased to 2.8% yoy reflecting weakness in both the durables and non-durables
segment. The weakness in the durables segment confirms that the monetary tightening cycle is
starting to bit. Consumer finance rates have progressively gone up in recent months. The
slowdown is also consistent with other measures of consumption such as ‘currency held by the
public’ and demand deposits. As consumption has become key driver of India’s growth, this data
is comes as a major setback.
Capital goods output increased 4% yoy compared with a sharp contraction in July. However, this
is not symptomatic of a recovery. Capital goods data is by definition, volatile and more
importantly, investment intentions continue to soften reflecting the sluggish pace of reforms.
Based on these trends, we believe that the RBI will downgrade its FY12 (fiscal year ending March
2012) growth forecast of 8%. This number is looking increasingly difficult. With a downwardly
revised GDP forecast, we also expect the RBI to pause. Though inflation has now been close to
10% yoy for almost 20 months now, macro data data is telling us that it is not a monetary issue.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Industrial output in August was unsurprisingly uninspiring yet again. At an aggregate level,
industrial output rose 4.1% yoy (July: 3.8% yoy). Growth in the manufacturing sub-sector was
4.5% yoy compared with 3.1% yoy. Barring one month, we have now had a full year of sub-10%
yoy growth.
The change this month was weaker consumer goods production (Figure 2 below). Consumer
goods production eased to 2.8% yoy reflecting weakness in both the durables and non-durables
segment. The weakness in the durables segment confirms that the monetary tightening cycle is
starting to bit. Consumer finance rates have progressively gone up in recent months. The
slowdown is also consistent with other measures of consumption such as ‘currency held by the
public’ and demand deposits. As consumption has become key driver of India’s growth, this data
is comes as a major setback.
Capital goods output increased 4% yoy compared with a sharp contraction in July. However, this
is not symptomatic of a recovery. Capital goods data is by definition, volatile and more
importantly, investment intentions continue to soften reflecting the sluggish pace of reforms.
Based on these trends, we believe that the RBI will downgrade its FY12 (fiscal year ending March
2012) growth forecast of 8%. This number is looking increasingly difficult. With a downwardly
revised GDP forecast, we also expect the RBI to pause. Though inflation has now been close to
10% yoy for almost 20 months now, macro data data is telling us that it is not a monetary issue.
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