Industrial Production (IIP)
The surprise 6.8% spurt is a misnomer
Solid performance
IIP growth for Jan’2012 at 6.8%YoY came as a big surprise and was significantly higher than our expectation of 1.8-2% and consensus around 2.4%. The key surprise came from the manufacturing sector performance which grew at 8.5% vs our expectation of 2%. ‘Food Products and Beverages’ have shown the highest growth of 92.6% YoY, followed by 56.1% in ‘Publishing, Printing and Reproduction of Recorded Media’ and 29.9% in ‘Medical, precision & optical instruments, watches and clocks’. Industry group ‘Electrical machinery & apparatus n.e.c.’ has shown a negative growth of 30.5% followed by 14.1% in ‘Office Accounting and Computing Machinery’ and 13.8% in ‘Radio, TV and Communication Equipment and Apparatus’.
… however, overall growth remains dismal
Apart from consumer goods sector, growth for Basic goods (1.6%), Capital goods (-1.5%) and Intermediate goods (-3.5%) remained dismal. In addition to Jan 12 numbers there were revisions for Oct 11 and Dec 11. Oct 11 growth has been revised to -5% vs -4.9% earlier and Dec 11 growth has been revised up to 2.5% vs 1.8% earlier.
Spike up in consumer goods growth is skewed
User based classification show a huge spurt in consumer goods growing at 20.2% for the month, largely aided by consumer non-durables at 42%.
Items of consumer goods showing high positive growth during Jan 12 and thus contributing to the growth of the overall index for the month include:
· ‘Zarda /Chewing Tobacco’ (127.3%), ‘Marble Tiles/Slabs’ (69.4%), ‘Newspapers’ (57.1%) and ‘Pens of all kind’ (31.8%).
Items of the consumer goods are also showing negative growth:
· ‘Vitamins’ [(-) 54.2%], ‘Air Conditioner (Room)’ [(-)47.5%], ‘Fruit Pulp’ [(-)33.2%], ‘Antibiotics and its Preparations’ [(-)16.4%] and ‘Gems and Jewellery’ [(-)15.5%].
Other items showing high positive growth are:
· ‘Petroleum Coke’ (246.6%), ‘Lens of all kind’ (72.0%), ‘Insulated Cables/Wires all kind’ (57.5%), ‘Boilers’ (46.4%) and ‘Heat Exchangers’ (46.3%).
Other items showing negative growth:
· ‘Color TV Picture Tubes’ [(-)91.9%], ‘UPS/ Inverter/ Converter’ ((-)79.4%), ‘Cement Machinery’ [(-)73.6%] and ‘Cable, Rubber Insulated’ [(-)66.2%].
Industrial sector is in a contraction mode
The surprise element in Jan’12 IIP growth numbers is huge and largely coming from very select items within food and beverages. While we are not sure if we can call them aberrations but is more than evident that at the broader level the manufacturing and industrial sector is into a slowdown or a contraction mode. The upsurge in the manufacturing index in Jan has come from insignificant component Zarda and Chewing tobacco which grew by 127.3%, thereby caused a sharp jump in consumer non-durables growth. It is most unlikely that consumption of tobacco to have growth that much and possibly reflects response to anticipatd hike in excise duty hike in the upcoming budget. If our assessment is correct then one can expect a sharp reduction in production in the coming months.
… Clearly reflects slump in both consumption and investment demand
But excluding the consumer non-durables, the IIP data indicate contractions in both consumer durables and capital goods indicating a slump in both consumption and investment demand. Importantly, there is a marked deceleration in intermediate and basic goods, which are indicators of the underlying weakness in the manufacturing sector. Excluding food & beverages, IIP (93% by weight in IIP) growth for Jan 2011 stands at -0.5% vs 1.1% in Dec 2011 and 7.6% in Jan 2011. Likely wise, manufacturing sector growth excluding food and beverages (90.4% by weight in manufacturing sector index) grew at -0.7% vs 0.8% in Dec 11 and 8.3% in Jan 2011.
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