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Economy
Industrial Production
September IIP: Another month of disappointing growth. India’s industrial
production growth for September decelerated to 1.9% from a downward revised 3.6%
in August (4.1% provisional). The print was sharply lower than the consensus and our
estimate of 3.5%. The slowdown was across the board, other than consumer durables
which likely benefited from pre-festive season related stocking. Industrial activity now
shows considerable slowdown signs with 1HFY12 growth at 5% against 8.2% in
1HFY11. We do not expect a change in the RBI’s stance following today’s data, as
inflation remains uncomfortably high.
Manufacturing growth drops to a two-year low, mining production contracts by 5.7%
Manufacturing sector growth decelerated to a two-year low of 2.1% in September from 4.1% in
August, but the index rose by 2.2% mom. Re-stocking ahead of the festive season demand
together with some quarter-ending production boost possibly lifted the index in September. On
the two-digit level, 15 of the 22 manufacturing industrial groups showed positive growth, up from
12 groups in August. While sectors such as ‘radio, TV and communications equipment &
apparatus’ (25%), ‘office, accounting & computing machinery’ (16.6%) recorded strong growth,
others such as ‘electrical machinery & apparatus n.i.e’ ((-)27.7%), ‘furniture, manufacturing n.e.c’
((-)8.2%), ‘wearing apparels, dressing, and dyeing of fur’ ((-)8.1%) continued to show weakness.
Mining sector growth contracted for the second straight month by 5.7% ((-)4.9% mom), as coal
production continues to suffer from policy issues. As per the core sector data, coal production
contracted by a sharp 17.8% in September after a (-)15.3% growth in August. This has weighed
on the mining sector, with 1HFY12 growth down to 1.0% as against 7.2% in 1HFY11. Electricity
sector continues to exhibit robust trends, growing by 9.0% in September after 9.5% growth in
August; though a low base of the last year (September 2010 growth at 1.8%) is favoring the
sector (mom contraction seen in electricity index).
Consumer durables segment picks up, but others continue to show weakening trends
Consumer durable goods segment was the savior, as the sector grew by a robust 8.7% with the
index rising by 10.6% mom, aided by possible re-stocking ahead of the festive season demand.
However, this robust performance might not sustain for long. According to SIAM, passenger car
sales recorded their steepest decline in over a decade in October (24%), on higher borrowing costs
and production shutdown at an auto-manufacturer. Surprisingly, the trend of any sharp pick-up in
capital goods production at quarter-ends failed to repeat in September with capital goods rising by
9.2% mom (-6.8% yoy), which is far lower than the 15% average jump in the index seen in
Septembers since 2005. All the other sectors showed marked weakness—basic goods production
((-) 3.3% mom), intermediate goods ((-)2% mom) and consumer non-durables ((-)1.9% mom).
Industrial slowdown in place – headwinds to growth to continue
A slowdown in industrial activity in FY2012 was expected, in part due to cyclical factors as the
sector grew at a robust 8.3% in FY2011, and in part due to the impact of higher borrowing costs,
sticky inflation and weakening global demand. However, the extent of the deceleration is
surprising—growth is down from 8.2% in 1HFY11 to 5.0% in 1HFY12. We expect the sluggish
trends in IIP growth to continue in 2HFY12E as sentiments continue to remain on the weaker side.
This, together with signs of moderation in services (October services PMI fell 0.7 points to 49.1),
has probably put our 7.3% FY2012E GDP growth estimate at risk. We do not think that the
sharper-than-expected slowdown in economic activity will change the policy stance of RBI, unless
headline WPI comes off significantly. We see the RBI on an extended pause and any chance of a
rate cut could be pushed back to the beginning of 2QFY13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Industrial Production
September IIP: Another month of disappointing growth. India’s industrial
production growth for September decelerated to 1.9% from a downward revised 3.6%
in August (4.1% provisional). The print was sharply lower than the consensus and our
estimate of 3.5%. The slowdown was across the board, other than consumer durables
which likely benefited from pre-festive season related stocking. Industrial activity now
shows considerable slowdown signs with 1HFY12 growth at 5% against 8.2% in
1HFY11. We do not expect a change in the RBI’s stance following today’s data, as
inflation remains uncomfortably high.
Manufacturing growth drops to a two-year low, mining production contracts by 5.7%
Manufacturing sector growth decelerated to a two-year low of 2.1% in September from 4.1% in
August, but the index rose by 2.2% mom. Re-stocking ahead of the festive season demand
together with some quarter-ending production boost possibly lifted the index in September. On
the two-digit level, 15 of the 22 manufacturing industrial groups showed positive growth, up from
12 groups in August. While sectors such as ‘radio, TV and communications equipment &
apparatus’ (25%), ‘office, accounting & computing machinery’ (16.6%) recorded strong growth,
others such as ‘electrical machinery & apparatus n.i.e’ ((-)27.7%), ‘furniture, manufacturing n.e.c’
((-)8.2%), ‘wearing apparels, dressing, and dyeing of fur’ ((-)8.1%) continued to show weakness.
Mining sector growth contracted for the second straight month by 5.7% ((-)4.9% mom), as coal
production continues to suffer from policy issues. As per the core sector data, coal production
contracted by a sharp 17.8% in September after a (-)15.3% growth in August. This has weighed
on the mining sector, with 1HFY12 growth down to 1.0% as against 7.2% in 1HFY11. Electricity
sector continues to exhibit robust trends, growing by 9.0% in September after 9.5% growth in
August; though a low base of the last year (September 2010 growth at 1.8%) is favoring the
sector (mom contraction seen in electricity index).
Consumer durables segment picks up, but others continue to show weakening trends
Consumer durable goods segment was the savior, as the sector grew by a robust 8.7% with the
index rising by 10.6% mom, aided by possible re-stocking ahead of the festive season demand.
However, this robust performance might not sustain for long. According to SIAM, passenger car
sales recorded their steepest decline in over a decade in October (24%), on higher borrowing costs
and production shutdown at an auto-manufacturer. Surprisingly, the trend of any sharp pick-up in
capital goods production at quarter-ends failed to repeat in September with capital goods rising by
9.2% mom (-6.8% yoy), which is far lower than the 15% average jump in the index seen in
Septembers since 2005. All the other sectors showed marked weakness—basic goods production
((-) 3.3% mom), intermediate goods ((-)2% mom) and consumer non-durables ((-)1.9% mom).
Industrial slowdown in place – headwinds to growth to continue
A slowdown in industrial activity in FY2012 was expected, in part due to cyclical factors as the
sector grew at a robust 8.3% in FY2011, and in part due to the impact of higher borrowing costs,
sticky inflation and weakening global demand. However, the extent of the deceleration is
surprising—growth is down from 8.2% in 1HFY11 to 5.0% in 1HFY12. We expect the sluggish
trends in IIP growth to continue in 2HFY12E as sentiments continue to remain on the weaker side.
This, together with signs of moderation in services (October services PMI fell 0.7 points to 49.1),
has probably put our 7.3% FY2012E GDP growth estimate at risk. We do not think that the
sharper-than-expected slowdown in economic activity will change the policy stance of RBI, unless
headline WPI comes off significantly. We see the RBI on an extended pause and any chance of a
rate cut could be pushed back to the beginning of 2QFY13E.
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