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INDIA PRODUCTION –
Deceleration broadening
India’s industrial production (IP) rose 4.1% YoY in
August, lower than consensus estimate of 4.7% and
well below our 6% expectation. IP grew at a slowerthan-expected pace despite a favourable base effect
for August, which we had pencilled in. Overall, the
data suggest that the deceleration in growth is
becoming more broadly based. On a slight positive
note, May and July 2011 data were revised up by
0.3ppt and 0.5ppt to 6.2% and 3.8%, respectively. It
is likely that August data too will be marginally
revised up but overall growth will remain tepid.
In the details, electricity output grew 9.5% YoY but
this comes on an extremely low base of 1% in August
2010. Manufacturing grew a moderate 4.5% while
mining output declined 3.4%YoY. Consumer durable
goods too witnessed a sluggish growth of 3.7%YoY.
The volatile capital goods segment contributed 0.6ppt
to overall IP growth and was up 3.9% YoY after a
13.8% fall in July. IP ex capital goods growth slowed
down to 4.1%YoY after 7.1%YoY in July.
On a 3mma basis, IP growth decelerated to 5.5%
YoY in August from 6.3% in July and 6.8% in June.
On a MoM (sa) basis, manufacturing, mining and
electricity witnessed a decline in August. This
supports the weak outlook exhibited by softening
PMI data. Overall, the IP details suggest further
moderation in industrial activity, which is being
affected by higher policy rates and the worsening
global backdrop. We maintain our GDP growth
forecast of 7.3% for FY12 (FY11: 8.5%, but the
government will probably revise it higher).
The RBI still appears to have a bias to hike on 25
October as WPI inflation has so far not shown any
sign of softening. Also, the deceleration in growth is
an intended outcome of monetary tightening.
However, the bar to hike this time is much higher as
the growth deceleration is more palpable and the
worsening global backdrop is also a cause for
concern. The September WPI inflation data (due
Friday) will seal the case for the likely action. If there
is some softening in inflation, the RBI could prefer to
stay on hold but clearly indicate that a pause does not
necessarily mean that monetary tightening has ended.
However, in the absence any soothing signal in the
inflation data, another rate hike will be the most
likely outcome.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA PRODUCTION –
Deceleration broadening
India’s industrial production (IP) rose 4.1% YoY in
August, lower than consensus estimate of 4.7% and
well below our 6% expectation. IP grew at a slowerthan-expected pace despite a favourable base effect
for August, which we had pencilled in. Overall, the
data suggest that the deceleration in growth is
becoming more broadly based. On a slight positive
note, May and July 2011 data were revised up by
0.3ppt and 0.5ppt to 6.2% and 3.8%, respectively. It
is likely that August data too will be marginally
revised up but overall growth will remain tepid.
In the details, electricity output grew 9.5% YoY but
this comes on an extremely low base of 1% in August
2010. Manufacturing grew a moderate 4.5% while
mining output declined 3.4%YoY. Consumer durable
goods too witnessed a sluggish growth of 3.7%YoY.
The volatile capital goods segment contributed 0.6ppt
to overall IP growth and was up 3.9% YoY after a
13.8% fall in July. IP ex capital goods growth slowed
down to 4.1%YoY after 7.1%YoY in July.
On a 3mma basis, IP growth decelerated to 5.5%
YoY in August from 6.3% in July and 6.8% in June.
On a MoM (sa) basis, manufacturing, mining and
electricity witnessed a decline in August. This
supports the weak outlook exhibited by softening
PMI data. Overall, the IP details suggest further
moderation in industrial activity, which is being
affected by higher policy rates and the worsening
global backdrop. We maintain our GDP growth
forecast of 7.3% for FY12 (FY11: 8.5%, but the
government will probably revise it higher).
The RBI still appears to have a bias to hike on 25
October as WPI inflation has so far not shown any
sign of softening. Also, the deceleration in growth is
an intended outcome of monetary tightening.
However, the bar to hike this time is much higher as
the growth deceleration is more palpable and the
worsening global backdrop is also a cause for
concern. The September WPI inflation data (due
Friday) will seal the case for the likely action. If there
is some softening in inflation, the RBI could prefer to
stay on hold but clearly indicate that a pause does not
necessarily mean that monetary tightening has ended.
However, in the absence any soothing signal in the
inflation data, another rate hike will be the most
likely outcome.
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