IIP & CPI Inflation Data Release | Economy

August 13, 2013

IIP & CPI Inflation Data Release

IIP disappoints and CPI inflation moderates
Key highlights

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

As per Quick Estimates on the Index of Industrial Production (IIP), in June 2013 industrial output declined by 2.2% on the back of a 2.0% de-growth in June 2012 contracting for the second consecutive month. The June 2013 IIP comes as a negative surprise since consensus estimates pegged output to decline by 1.2% during the month. More worryingly, IIP data for May 2013 has been revised lower by 120bp to reflect a 2.8% decline in production from de-growth of 1.6% reported earlier. On the demand-side, the production data mirrored weakness across the board but was supported to some extent by consumer non-durables. On a positive note, trade data released by the Commerce Ministry for the month of July 2013 showed an 11.6% rise in exports, the highest in 18 months. Imports reported a decline of 6.2% during July 2013 as compared to 0.4% de-growth in June 2013 owing to compression in both oil and non-oil imports (wherein deceleration in gold imports played a key role). The Consumer Price Index (CPI) inflation for July 2013 expectedly moderated to 9.6% as against 9.9% in June 2013 owing to deceleration in food as well as core inflation. Going ahead we expect CPI inflation to moderate further since food inflation is likely to decelerate owing to the good monsoon, pick-up in sowing of kharif crops and reasonable hike in MSP prices for kharif crops. Early indicators suggest that the IIP is likely to report a modest expansion for July 2013 owing to rebound in electricity production, pick up in exports and much lower contraction in automobile production.

IIP: Performance on Sector-wise classification

In terms of sector-wise classification, flat electricity production is a disappointment. This is mainly because electricity generation has been supporting the index since production in mining and manufacturing sectors has weighed on overall output in the past few months. It compares with strong growth of 6.2% in May 2013 and 8.8% in June 2012. Going ahead, it is likely to rebound by about 5.0%, supported by a low base. Owing to the contraction in coal, crude oil and natural gas production, the Mining sector continued to contract for the ninth consecutive month and reported a 4.1% decline in June 2013 as against a 1.1% contraction in the corresponding period of the previous year. The Manufacturing sector contracted for the second consecutive month by 2.2% as compared to contraction of 3.6% in May 2013 and 3.2% in June 2012. We believe that a sustainable growth in exports led by sharp INR depreciation and a recovery in global growth would eventually improve the outlook for the sector in the medium term.

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IIP & CPI Inflation Data Release

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

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

Jun-13 (2.2) (4.1) (2.2) (1.9) (6.6) 1.1 (2.3) (10.5) 5.0

May-13 (2.8) (5.9) (3.6) 6.2 (0.9) (2.6) 1.0 (7.1) (18.4) 3.0

Apr-13 1.9 (3.3) 2.3 4.2 2.0 (0.1) 2.6 2.1 (8.9) 11.5

Jun-12 (2.0) (1.1) (3.2) 8.8 3.6 (27.7) 0.9 3.7 9.1 (0.5)

1Q2014 (1.1) (4.5) (1.2) 3.5 (0.3) (3.3) 1.6 (2.4) (12.6) 6.6

1Q2013 (0.3) (1.5) (0.8) 6.4 3.3 (20.1) 0.8 3.9 8.0 0.6

1000 141.57 755.27 103.16 456.82 88.25 156.86 298.08 84.60 213.47

Exhibit 2: Decline in cons. and cap. goods production

(%) 10.0 5.0 (5.0) (10.0) (15.0) (20.0) (25.0) Nov-12 Apr-13 Jul-12 May-12 May-13 Apr-12 Aug-12 Sep-12 Mar-12 Mar-13 Oct-12 Jan-12 Dec-12 Jan-13 Feb-12 Feb-13 Jun-12 Jun-13
3MMA IIP 3MMA capital goods 3MMA consumer goods

Exhibit 3: Weakness in IIP index and PMI

(%) 8.0 6.0 4.0 2.0 (2.0) Feb-12 Feb-13 Jun-11 Jun-12 Aug-11 Aug-12 Oct-11 Oct-12 Dec-11 Dec-12 Apr-11 Apr-12 Apr-13 Jun-13
3MMA IIP ex-capital goods PMI Manufacturing (RHS)

(Index) 60.0 58.0 56.0 54.0 52.0 50.0 48.0

Source: MOSPI, Angel Research

Source: MOSPI, Markit Economics, Angel Research

IIP: Performance in the Use-based category

Consumer Durables continued to weigh heavily on the overall IIP for the third consecutive month. The production of consumer durables contracted by 10.5% during the month as compared to a 18.4% decline in the previous month and robust 9.1% growth in June 2012. Going forward though, the index is likely to find support owing to low base effect setting in. The 5.0% growth in the consumer non-durables segment supported overall consumer goods production. Its performance can be attributed mainly to the growth in production of wearing apparel and food and beverages. For 1QFY2014, consumer durables production has reported a steep 12.6% de-growth in contrast with growth of 8.0% during 1QFY2013. The Capital Goods index continued to reflect a weak investment climate. It disappointed with a 6.6% contraction despite a low base as it comes on the back of a sharp 27.7% decline in production for June 2012.

August 13, 2013

IIP & CPI Inflation Data Release

CPI inflation inches upwards to 9.9% in June 2013

In line with expectations of a further moderation in CPI inflation, the combined (rural + urban) inflation for July 2013 came in slightly lower at 9.6% from 9.9% in June 2013. Inflation in food articles in the CPI (accounting for almost 50% weightage in the index) has moderated, as expected, to 11% from 11.7% in the previous month. Fuel inflation also decelerated to 8.4% during July 2013 as against 8.6% in the previous month. Core (non-food, non-fuel) CPI inflation has also positively trended down to 8.0% in July 2013_as against a slightly higher 8.2% in the previous month. Going ahead we expect CPI inflation to moderate further since food inflation is likely to decelerate owing to the good monsoon, pick-up in sowing of kharif crops and reasonable hike in MSP prices for kharif crops.

Exhibit 4: Trends in Consumer Price Index inflation (%, yoy)

Weights Combined CPI Inflation 1) Food, Beverages and Tobacco 1.1) Cereals and Products 1.2) Pulses and Products 1.3) Oils and Fats 1.4) Egg, Fish and Meat 1.5) Milk and Products 1.6) Condiments and Spices 1.7) Vegetables 1.8) Fruits 1.9) Sugar etc. 1.10) Non-Alcoholic Beverages 1.11) Prepared Meals etc. 1.12) Pan, Tobacco and Intoxicants 2) Fuel and Light 3) Housing 4) Clothing, Bedding and Footwear 4.1) Clothing and Bedding 4.2) Footwear 5) Miscellaneous 5.1) Medical Care 5.2) Education, Stationary etc. 5.3) Recreation and Amusement 5.4) Transport and Communication 5.5) Personal Care and Effects 5.6) Household Requisites 5.7) Others
Source: MOSPI, Angel Research

Jul-12 9.9 11.6 6.4 12.6 17.5 11.0 12.1 1.9 27.2 9.2 9.4 9.3 9.0 10.8 7.3 10.7 10.9 10.9 10.5 7.5 6.4 6.9 3.4 6.8 7.2 10.6 11.9

Feb-13 10.9 13.4 16.9 12.3 14.6 15.7 8.0 4.9 21.2 9.9 12.2 10.2 10.5 10.9 8.7 10.5 10.9 11.1 9.5 7.2 6.4 7.3 5.2 7.3 7.3 7.7 11.5

Mar-13 10.4 12.3 17.6 11.4 11.7 14.4 7.7 5.1 12.2 10.7 11.7 10.3 10.5 11.1 8.3 10.5 10.6 10.8 9.5 7.4 6.2 7.4 5.3 8.1 7.0 7.2 11.5

Apr-13 9.4 10.7 16.7 10.9 7.5 13.7 7.0 5.5 5.8 8.0 10.5 10.3 10.3 9.9 8.1 10.6 10.3 10.4 9.1 7.0 6.6 7.5 5.3 7.4 6.8 5.5 11.4

May-13 9.3 10.7 16.3 9.6 5.5 12.5 7.1 6.4 10.0 6.0 9.2 10.5 10.3 9.5 8.5 10.7 9.7 9.9 8.6 6.1 6.5 7.2 5.3 5.4 6.7 5.1 11.4

Jun-13 9.9 11.7 17.5 8.9 5.2 12.8 8.0 7.7 14.7 7.4 9.1 10.9 10.5 9.7 8.6 10.7 14.0 9.8 8.5 6.2 6.4 8.0 5.8 5.1 6.9 4.7 11.3

Jul-13 9.6 11.0 16.0 5.5 2.8 13.8 8.1 7.4 16.4 6.8 5.3 10.2 10.1 8.9 8.4 10.6 9.4 9.7 8.1 6.8 6.4 8.0 6.1 7.5 6.7 4.5 10.8

100.0 49.7 14.6 2.7 3.9 2.9 7.7 1.7 5.4 1.9 1.9 2.0 2.8 2.1 9.5 9.8 4.7 4.1 0.7 26.3 5.7 3.4 1.4 7.6 2.9 4.3 1.1

August 13, 2013

IIP & CPI Inflation Data Release

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August 13, 2013

IIP & CPI Inflation Data Release

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August 13, 2013