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Economy
Industrial production
November IIP – growth swings to the other end of the spectrum. India’s industrial
production continues to be volatile, as November IIP growth jumped to 5.9%,
outstripping the Street expectations of 2.1% (Kotak 2.3%). Today’s number reverses
the steep decline witnessed in October (revised up to (-)4.7% from (-)5.1%). The sharp
rebound was led by consumer goods that grew by 13.1%. The strong reading for
November IIP is however not enough to let us change our 6.7% FY2012E GDP target.
In the monetary policy review on January 24, 2012, we expect RBI to keep the repo rate
unchanged at 8.50%.
Manufacturing sector growth bounces back
Manufacturing production growth jumped to 6.6%, erasing the decline in production seen last
month ((-)5.7%). While part of the strength was on account of base effect, the index did rise on a
sequential basis in November, as on an mom basis manufacturing index rose by 6.9%. As per the
two-digit industry classification, of the 22 industry groups, 17 industries showed positive growth
as against 12 in October. ‘Publishing, printing & reproduction of recorded media’ recorded the
highest growth (69.1% yoy, 44.0% mom), followed by ‘Medical, precision & optical instruments,
watches & clocks’ (41.8%) and ‘Food products and beverages’ (29.35). Mining production
continued to be weak with a growth of (-)4.4% after a 6.1% contraction in October. However,
the index level did pick up from October (4.2% mom), reflecting the close to 20% mom jump in
coal output in the eight-sector core production data. In line with the core sector data, electricity
production grew by 14.6%, purely on base effect as the index declined 4.3% mom.
Consumer goods, especially non-durables, lead the way
On the use-based side, all sectors saw a rise in production in November over the previous month.
The strongest gains were seen in consumer non-durables, where the index jumped by 15.3%
mom, taking the annual growth to 14.8%, the highest since October 2007. With consumer
durables equally strong (11.2% yoy), consumer goods growth was robust, rising by 13.1%.
A part of this strength was expected, as passenger cars and two-wheelers had risen sharply in
November (11.5% and 27%, respectively). However, this month’s strong growth was also driven
by ‘Woolen carpets’ (110.6%), followed by ‘Cashew kernels’ (97.3%), ‘Newspapers’ (70.9%),
‘Marble tiles/slabs’ (65.3%). Basic goods rose by 6.3% while intermediate goods growth was
muted (0.2%). Capital goods production on the other hand was the only one which contracted
(4.6%), but this was owing to an unfavorable base. Capital goods index jumped 14.2% this
month while excluding capital goods, industrial production rose by 7.8%.
RBI to maintain status quo on rates at the January policy meeting
We expect trends in India’s industrial production to remain weak in the remainder of FY2012E and
maintain our GDP estimate at 6.7% for FY2012E. While RBI might sound dovish on growth at its
forthcoming monetary policy meeting on January 24, 2012, it is unlikely to ease policy rates just
yet despite inflation also showing favorable trends (Kotak December 2011 WPI estimate 7.40%
from 9.11% in November). Inflation risks continue as the INR remains weak and as global
commodity prices have failed to soften significantly to reflect the global growth slowdown.
We thus stick to our call of a repo rate cut at the April policy meeting by 25 bps, and extend it to
100-125 bps in FY2013E. We were however looking for a 50 bps CRR cut in the January meeting
predominantly to neutralize liquidity implications from RBI interventions. However, interventions
recently are not likely to have been significant. Thus, OMOs would continue to remain the favored
route for RBI to induce liquidity as a CRR cut could also be construed by the market as a change in
the monetary stance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Industrial production
November IIP – growth swings to the other end of the spectrum. India’s industrial
production continues to be volatile, as November IIP growth jumped to 5.9%,
outstripping the Street expectations of 2.1% (Kotak 2.3%). Today’s number reverses
the steep decline witnessed in October (revised up to (-)4.7% from (-)5.1%). The sharp
rebound was led by consumer goods that grew by 13.1%. The strong reading for
November IIP is however not enough to let us change our 6.7% FY2012E GDP target.
In the monetary policy review on January 24, 2012, we expect RBI to keep the repo rate
unchanged at 8.50%.
Manufacturing sector growth bounces back
Manufacturing production growth jumped to 6.6%, erasing the decline in production seen last
month ((-)5.7%). While part of the strength was on account of base effect, the index did rise on a
sequential basis in November, as on an mom basis manufacturing index rose by 6.9%. As per the
two-digit industry classification, of the 22 industry groups, 17 industries showed positive growth
as against 12 in October. ‘Publishing, printing & reproduction of recorded media’ recorded the
highest growth (69.1% yoy, 44.0% mom), followed by ‘Medical, precision & optical instruments,
watches & clocks’ (41.8%) and ‘Food products and beverages’ (29.35). Mining production
continued to be weak with a growth of (-)4.4% after a 6.1% contraction in October. However,
the index level did pick up from October (4.2% mom), reflecting the close to 20% mom jump in
coal output in the eight-sector core production data. In line with the core sector data, electricity
production grew by 14.6%, purely on base effect as the index declined 4.3% mom.
Consumer goods, especially non-durables, lead the way
On the use-based side, all sectors saw a rise in production in November over the previous month.
The strongest gains were seen in consumer non-durables, where the index jumped by 15.3%
mom, taking the annual growth to 14.8%, the highest since October 2007. With consumer
durables equally strong (11.2% yoy), consumer goods growth was robust, rising by 13.1%.
A part of this strength was expected, as passenger cars and two-wheelers had risen sharply in
November (11.5% and 27%, respectively). However, this month’s strong growth was also driven
by ‘Woolen carpets’ (110.6%), followed by ‘Cashew kernels’ (97.3%), ‘Newspapers’ (70.9%),
‘Marble tiles/slabs’ (65.3%). Basic goods rose by 6.3% while intermediate goods growth was
muted (0.2%). Capital goods production on the other hand was the only one which contracted
(4.6%), but this was owing to an unfavorable base. Capital goods index jumped 14.2% this
month while excluding capital goods, industrial production rose by 7.8%.
RBI to maintain status quo on rates at the January policy meeting
We expect trends in India’s industrial production to remain weak in the remainder of FY2012E and
maintain our GDP estimate at 6.7% for FY2012E. While RBI might sound dovish on growth at its
forthcoming monetary policy meeting on January 24, 2012, it is unlikely to ease policy rates just
yet despite inflation also showing favorable trends (Kotak December 2011 WPI estimate 7.40%
from 9.11% in November). Inflation risks continue as the INR remains weak and as global
commodity prices have failed to soften significantly to reflect the global growth slowdown.
We thus stick to our call of a repo rate cut at the April policy meeting by 25 bps, and extend it to
100-125 bps in FY2013E. We were however looking for a 50 bps CRR cut in the January meeting
predominantly to neutralize liquidity implications from RBI interventions. However, interventions
recently are not likely to have been significant. Thus, OMOs would continue to remain the favored
route for RBI to induce liquidity as a CRR cut could also be construed by the market as a change in
the monetary stance.
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