IIP - Broad-Based Improvement:: Edelweiss

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IIP expanded ~4.1% YoY in April (far better than 2.5% expected) on account of broad-based pick up in the manufacturing sector- industry as well as consumer goods. Electricity and mining, however, lost pace. The key highlight is that capital goods production has been clocking a healthy trend consistently over the past 5-6 months. Even consumer goods, especially non-durables, are gaining traction, although the pace of activity is still modest in these categories.

It is noteworthy that manufacturing is improving despite contraction in exports and weakness in rural demand. Our sense is that improving external capital flows (which are helping improve monetary conditions in the economy), government`s efforts to revive stalled projects and traction in real incomes, especially in urban areas, are helping manufacturing activity. To that extent, we do anticipate gradual recovery continuing, albeit at an uneven pace.

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