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IIP came in at 4.1% yoy in February 2012, significantly lower than our estimate of 7%. More importantly, the number for
the previous month has been revised downwards to 1.1% yoy from the provisional data of 6.8% yoy reported earlier.
This raises questions on the quality of IIP data and, in turn, the efficacy of these high-frequency indicators in
determining short-term growth trends. With the revised numbers, IIP growth has shrunk by 1.7% mom (without
adjusting for seasonality) in February 2012 as against a contraction of 1.2% last month due to tepid growth in consumer
goods (down 0.2% yoy). Growth of the mining segment recovered marginally to 2.1% yoy after contracting for the last
six months. Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups
clocking positive growth. Electricity growth was strong, at 8% yoy, in line with the Core 8 industries data. With growing
skepticism on the quality of IIP data, we expect the central bank to use it in conjunction with other monthly indicators
like Core 8 industries data, PMI indices, export growth, etc. While other indicators are suggesting a marginal
improvement in economic growth momentum in Q4FY12, PMI indices suggest that growth is again beginning to falter
(HSBC Manufacturing PMI in March 2012 was lower, at 54.7, as against 56.6 in February 2012). We maintain that
downside risks to FY13 GDP growth remain and hence expect the policy stance of the RBI to become more
accommodative hereon. So, we expect the central bank to embark on a monetary-easing cycle with a 25bp rate cut in
April 2012.
Event:
IIP growth for February 2012 came in at 4.1% yoy, below our expectation due to tepid growth in consumer goods.
Growth in consumer goods contracted by 0.2% yoy due to 6.7% yoy contraction in consumer durables. Further, growth
in consumer non-durables moderated to 5.1% yoy as against 11% yoy (revised downwards from 42% yoy reported
earlier) in January 2012. On other use-based indices, while growth of basic goods came in at a robust 7.5% yoy, the
trend in intermediate goods (down 0.6% yoy) suggests further weakness in IIP growth going ahead. Capital goods grew
by 10.6% yoy as against a contraction of 1.7% yoy in January 2012 due to a favorable base.
Growth of mining segment came in at 2.1% yoy in February 2012 after contracting for the last six months.
Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups clocking
positive growth. Electricity growth continues to be strong, at 8% yoy, in line with the Core 8 industries data.
IIP growth for January 2012 was revised downwards to 1.1% yoy from 6.8% yoy reported earlier. The revision was
attributed to a correction in the production data of sugar (revised to 5.8m tonnes from 13.4m tonnes reported earlier).
Exhibit 1: Sectoral classification
(% yoy growth) Weight Feb-12
Food Products and beverages 7.3 4.8
Tobacco products 1.6 4.4
Textiles 6.2 3.4
Wearing apparel; dressing and dyeing of fur 2.8 3.7
Leather; tanning and dressing of leather products 0.6 1.5
Wood and wood products 1.1 1.7
Paper and paper products 1.0 6.2
Publishing, printing & reproduction of recorded media 1.1 60.1
Coke, refined petroleum products & nuclear fuel 6.7 5.5
Chemicals and chemical products 10.1 (2.4)
Rubber and plastics products 2.0 3.8
Other non-metallic mineral products 4.3 8.8
Basic metals 11.3 8.1
Fabricated metal products, except machinery & equipment 3.1 8.6
Machinery and equipment n.e.c. 3.8 (9.4)
Office, accounting & computing machinery 0.3 (13.5)
Electrical machinery & apparatus n.e.c. 2.0 8.8
Radio, TV and communication equipment & apparatus 1.0 (15.9)
Medical, precision & optical instruments, watches and clocks 0.6 52.1
Motor vehicles, trailers & semi-trailers 4.1 16.4
Other transport equipment 1.8 1.3
Furniture; manufacturing n.e.c. 3.0 0.1
Mining & Quarrying 14.2 2.1
Manufacturing 75.5 4.0
Electricity 10.3 8.0
General Index 100.0 4.1
Source: Mospi
Sectoral classification:
Manufacturing growth came in at 4% yoy, with 18 of the 22 industry groups (~72% weight in the manufacturing index)
clocking positive growth. On a three-month moving average, growth of the manufacturing segment moderated to 2.7%
yoy as against 3.5% yoy in the previous month. While growth was strong in Food Products & Beverages, Basic Metal,
Motor Vehicles, Trailers & Semi-trailers and Textiles, the index was dragged lower by weak growth in Chemicals &
Chemical Products and Machinery & Equipment
Growth of mining rebounded to 2.1% yoy after contracting for the last six months. On a sequential basis, mining
continued to contract by 2% in February 2012. Electricity growth came in at 8% yoy entirely led by an increase in coalbased
generation, which offset the fall in gas-based generation.
Use-based classification:
Consumer goods contracted by 0.2% yoy in February 2012 on the back of a 6.7% decline in consumer durables.
Consumer durables growth was weak despite a robust uptick in passenger car sales during the month. Further, growth
of consumer non-durables moderated to 5.1% yoy as against 11% yoy (revised downwards from 42% yoy reported
earlier) in January 2012. On other use-based indices, while growth in basic goods was a robust 7.5% yoy, the trend in
intermediate goods (down 0.6% yoy) suggests further weakness in IIP growth going ahead. The capital goods segment
grew by 10.6% yoy as against a contraction of 1.7% yoy in January 2012 on the back of a favorable base
Our view:
IIP for February 2012 came in significantly below expectations led by a contraction in consumer goods (lowest reading
in two-and-a-half years!). However, with the data being extremely volatile and fraught with huge revisions, we note the
need to use the IIP numbers in conjunction with other high-frequency indicators like Core 8 industries data, PMI indices,
export growth, etc.
While other indicators are suggesting a marginal improvement in economic growth momentum in Q4FY12, PMI indices
suggest that the growth momentum is again beginning to falter (HSBC Manufacturing PMI in March 2012 was lower, at
54.7, as against 56.6 in February 2012). With increasing downside risks to growth, we expect the monetary policy of the
RBI to turn more accommodative. Further, core inflation has also finally moderated to 5.7% in February 2012 after
averaging in excess of 7% for almost a year. Consequently, we expect the central bank to start cutting policy rates from
April 2012 and expect 75-100bp cut in repo rates over the next 12 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IIP came in at 4.1% yoy in February 2012, significantly lower than our estimate of 7%. More importantly, the number for
the previous month has been revised downwards to 1.1% yoy from the provisional data of 6.8% yoy reported earlier.
This raises questions on the quality of IIP data and, in turn, the efficacy of these high-frequency indicators in
determining short-term growth trends. With the revised numbers, IIP growth has shrunk by 1.7% mom (without
adjusting for seasonality) in February 2012 as against a contraction of 1.2% last month due to tepid growth in consumer
goods (down 0.2% yoy). Growth of the mining segment recovered marginally to 2.1% yoy after contracting for the last
six months. Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups
clocking positive growth. Electricity growth was strong, at 8% yoy, in line with the Core 8 industries data. With growing
skepticism on the quality of IIP data, we expect the central bank to use it in conjunction with other monthly indicators
like Core 8 industries data, PMI indices, export growth, etc. While other indicators are suggesting a marginal
improvement in economic growth momentum in Q4FY12, PMI indices suggest that growth is again beginning to falter
(HSBC Manufacturing PMI in March 2012 was lower, at 54.7, as against 56.6 in February 2012). We maintain that
downside risks to FY13 GDP growth remain and hence expect the policy stance of the RBI to become more
accommodative hereon. So, we expect the central bank to embark on a monetary-easing cycle with a 25bp rate cut in
April 2012.
Event:
IIP growth for February 2012 came in at 4.1% yoy, below our expectation due to tepid growth in consumer goods.
Growth in consumer goods contracted by 0.2% yoy due to 6.7% yoy contraction in consumer durables. Further, growth
in consumer non-durables moderated to 5.1% yoy as against 11% yoy (revised downwards from 42% yoy reported
earlier) in January 2012. On other use-based indices, while growth of basic goods came in at a robust 7.5% yoy, the
trend in intermediate goods (down 0.6% yoy) suggests further weakness in IIP growth going ahead. Capital goods grew
by 10.6% yoy as against a contraction of 1.7% yoy in January 2012 due to a favorable base.
Growth of mining segment came in at 2.1% yoy in February 2012 after contracting for the last six months.
Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups clocking
positive growth. Electricity growth continues to be strong, at 8% yoy, in line with the Core 8 industries data.
IIP growth for January 2012 was revised downwards to 1.1% yoy from 6.8% yoy reported earlier. The revision was
attributed to a correction in the production data of sugar (revised to 5.8m tonnes from 13.4m tonnes reported earlier).
Exhibit 1: Sectoral classification
(% yoy growth) Weight Feb-12
Food Products and beverages 7.3 4.8
Tobacco products 1.6 4.4
Textiles 6.2 3.4
Wearing apparel; dressing and dyeing of fur 2.8 3.7
Leather; tanning and dressing of leather products 0.6 1.5
Wood and wood products 1.1 1.7
Paper and paper products 1.0 6.2
Publishing, printing & reproduction of recorded media 1.1 60.1
Coke, refined petroleum products & nuclear fuel 6.7 5.5
Chemicals and chemical products 10.1 (2.4)
Rubber and plastics products 2.0 3.8
Other non-metallic mineral products 4.3 8.8
Basic metals 11.3 8.1
Fabricated metal products, except machinery & equipment 3.1 8.6
Machinery and equipment n.e.c. 3.8 (9.4)
Office, accounting & computing machinery 0.3 (13.5)
Electrical machinery & apparatus n.e.c. 2.0 8.8
Radio, TV and communication equipment & apparatus 1.0 (15.9)
Medical, precision & optical instruments, watches and clocks 0.6 52.1
Motor vehicles, trailers & semi-trailers 4.1 16.4
Other transport equipment 1.8 1.3
Furniture; manufacturing n.e.c. 3.0 0.1
Mining & Quarrying 14.2 2.1
Manufacturing 75.5 4.0
Electricity 10.3 8.0
General Index 100.0 4.1
Source: Mospi
Sectoral classification:
Manufacturing growth came in at 4% yoy, with 18 of the 22 industry groups (~72% weight in the manufacturing index)
clocking positive growth. On a three-month moving average, growth of the manufacturing segment moderated to 2.7%
yoy as against 3.5% yoy in the previous month. While growth was strong in Food Products & Beverages, Basic Metal,
Motor Vehicles, Trailers & Semi-trailers and Textiles, the index was dragged lower by weak growth in Chemicals &
Chemical Products and Machinery & Equipment
Growth of mining rebounded to 2.1% yoy after contracting for the last six months. On a sequential basis, mining
continued to contract by 2% in February 2012. Electricity growth came in at 8% yoy entirely led by an increase in coalbased
generation, which offset the fall in gas-based generation.
Use-based classification:
Consumer goods contracted by 0.2% yoy in February 2012 on the back of a 6.7% decline in consumer durables.
Consumer durables growth was weak despite a robust uptick in passenger car sales during the month. Further, growth
of consumer non-durables moderated to 5.1% yoy as against 11% yoy (revised downwards from 42% yoy reported
earlier) in January 2012. On other use-based indices, while growth in basic goods was a robust 7.5% yoy, the trend in
intermediate goods (down 0.6% yoy) suggests further weakness in IIP growth going ahead. The capital goods segment
grew by 10.6% yoy as against a contraction of 1.7% yoy in January 2012 on the back of a favorable base
Our view:
IIP for February 2012 came in significantly below expectations led by a contraction in consumer goods (lowest reading
in two-and-a-half years!). However, with the data being extremely volatile and fraught with huge revisions, we note the
need to use the IIP numbers in conjunction with other high-frequency indicators like Core 8 industries data, PMI indices,
export growth, etc.
While other indicators are suggesting a marginal improvement in economic growth momentum in Q4FY12, PMI indices
suggest that the growth momentum is again beginning to falter (HSBC Manufacturing PMI in March 2012 was lower, at
54.7, as against 56.6 in February 2012). With increasing downside risks to growth, we expect the monetary policy of the
RBI to turn more accommodative. Further, core inflation has also finally moderated to 5.7% in February 2012 after
averaging in excess of 7% for almost a year. Consequently, we expect the central bank to start cutting policy rates from
April 2012 and expect 75-100bp cut in repo rates over the next 12 months.
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