IIP Update January 2013 | Economy

March 12, 2013

IIP Update January 2013

Industrial growth rebounds to 2.4%
Key highlights
As per Quick Estimates on the Index of Industrial Production (IIP), industrial growth in January 2013 improved to 2.4% yoy as compared to a de-growth of 0.5% yoy in December 2012 and 1.0% yoy growth in January 2012. In the April January period of FY2013, the index reported a flat 0.9% yoy growth as compared to 3.4% yoy growth in the corresponding period of the previous year. Growth in eight core industries (37.9% weightage in the index) also gained traction as it accelerated to 3.9% yoy in January 2013 as compared to a growth of 2.5% yoy in December 2012 and 2.2% yoy growth in January 2012.

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

Performance on sectoral basis

The rebound in IIP growth, after two straight months of contraction, can be attributed to a pick-up in manufacturing activity (weightage: 75.5%) and electricity production (weightage: 10.3%). The Manufacturing sector, reported a 2.7% yoy growth during the month aided by a low base effect as compared to a growth of 1.1% yoy in January 2012 with 11 of the 22 industry groups in manufacturing registering a positive growth. Growth in Electricity accelerated for the second consecutive month to 6.4% yoy, the highest in seven months as compared to 3.2% yoy in the corresponding month of the previous year. The Mining sector witnessed a 2.9% yoy de-growth as weakness in production of coal, crude oil and natural gas persist due to regulatory issues in the sector.

Performance in the Use-based category

The Capital goods index contracted for the third straight month (by 1.8% yoy in January 2013) despite a favorable base, reflecting the persistent weakness in the investment cycle. The Reserve Bank of India (RBI) has initiated policy rate easing and this is likely to augur positively for investments with a lag of about two quarters. On a FYTD basis, the Capital goods index continued to contract, ie by 9.3% yoy as compared to a 2.9% yoy decline in the corresponding period of the previous year. Growth in Consumer goods production recovered to 2.8% yoy in January 2013 after two straight months of contraction, mainly since Consumer non-durables rebounded to 5.3% yoy, the highest level in the past 12 months. Consumer durables contracted slightly by 0.9% yoy as compared to a steeper 8.2% yoy decline in the previous month and 7.5% yoy decline in January 2012.

Please refer to important disclosures at the end of this report

IIP Update January 2013

Exhibit 1: Trends in industrial production (%, yoy)

Weights General Index Sectoral Classification Mining Manufacturing Electricity Use-based Classification Basic goods Capital goods Intermediate goods Consumer goods - Consumer durables - Consumer non-durables
Source: MOSPI, Angel Research

Jan-13 2.4 (2.9) 2.7 6.4 3.4 (1.8) 2.0 2.8 (0.9) 5.3

Dec-12 (0.5) (3.4) (0.7) 5.2 1.8 (0.6) 0.7 (3.6) (8.2) (0.4)

Nov-12 (0.8) (5.5) (0.6) 2.4 1.5 (8.5) (1.6) (0.3) 1.3 (1.6)

Jan-12 1.0 (2.1) 1.1 3.2 1.9 (2.7) (2.5) 2.5 (7.5) 10.6

FYTD 2013 0.9 (1.9) 0.9 4.7 2.8 (9.3) 1.7 2.7 3.2 2.3

FYTD 2012 3.4 (2.5) 3.7 8.8 5.8 (2.9) (0.8) 5.3 3.8 6.6

1000 141.57 755.27 103.16 355.65 92.57 265.14 286.64 53.65 232.99

Exhibit 2: Weakness in capital goods production persists

(%) 10.0 5.0 (5.0) (10.0) (15.0) (20.0) (25.0) May-12 Mar-12 Jun-12 Sep-12 Oct-12 Jul-12 Aug-12 Nov-12 Dec-12 Feb-13 Jan-13 Feb-12 Apr-12 Jan-12 Jan-13 (Index) 60.0 58.0 56.0 54.0 52.0 50.0 48.0 Nov-11 May-11 May-12 Nov-12 Feb-12 Mar-12 Sep-11 Sep-12 Oct-11 Jan-12 Dec-11 Oct-12 Jun-11 Jun-12 Jul-11 Jul-12 Aug-11 Aug-12 Dec-12 Apr-11 Apr-12 3MMA IIP 3MMA capital goods 3MMA consumer goods

Source: MOSPI, Angel Research

Exhibit 3: Revival in manufacturing sector eyed

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) 3MMA manufacturing PMI Manufacturing (RHS)

Source: MOSPI, Angel Research

March 12, 2013

IIP Update January 2013

Growth of core Industries

The Index for Eight Core Industries, having a combined weight of 37.9% in the IIP, also gained traction as it accelerated to 3.9% yoy in January 2013 as compared to a growth of 2.5% yoy in December 2012 and 2.2% yoy growth in January 2012. Growth in core industries during the month was supported by performance of petroleum refinery products, steel and electricity. In the April January period of FY2013, the eight core industries reported a lower 3.2% yoy growth as compared to 5.0% yoy growth in the corresponding period of the previous year.

Exhibit 4: Performance of Core industries (%, yoy)

Weight Coal Crude Oil Natural Gas Petroleum Refinery Products Fertilizers Steel Cement Electricity Eight core industries
Source: MOSPI, Angel Research

Jan-13 2.3 (0.2) (16.8) 10.5 (9.1) 9.4 (6.6) 5.9 3.9

Jan-12 7.7 (2.0) (10.4) (4.6) 4.0 4.5 10.9 3.2 2.2

FYTD 2013 5.2 (0.4) (13.7) 7.3 (4.0) 3.1 4.6 4.8 3.2

FYTD 2012 (1.4) 1.5 (8.9) 3.0 (0.1) 10.9 6.3 8.7 5.0

4.4 5.2 1.7 5.9 1.3 6.7 2.4 10.3 37.9

Policy Outlook
We expect growth in industrial activity, as measured by the IIP, to remain subdued in the range of 1% - 2% for FY2013, lower than the 2.9% yoy growth in the previous fiscal year. Going forward, growth in industrial production is likely to be augmented by the impact of monetary policy easing (with a lag) and a low base effect setting in for FY2014. The headline Consumer Price Index (CPI) inflation for February 2013 accelerated for the fifth straight month to 10.9% yoy, higher than 10.8% yoy in the previous month and 8.8% yoy in February 2012, as food inflation inched up (to 13.7% yoy) on the back of elevated prices of vegetable, cereals and egg, fish and meat. We believe that elevated CPI inflation and the widening wedge between WPI and CPI inflation are likely to compound the policy dilemma for the RBI. We expect a 25bp cut in the repo rate by the RBI in its March 19 policy review owing to the moderation in growth (4.5% yoy in 3QFY2013 and estimated 5.0% yoy for FY2013) and deceleration of WPI inflation along with efforts to narrow the fiscal deficit.

March 12, 2013

IIP Update January 2013

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March 12, 2013

IIP Update January 2013

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March 12, 2013