[T.S.R:17519] IIP-New Index Gives Better Representation

While Apr'11 IIP growth was lower than our expectations, seasonally adjusted data shows that the acceleration in industrial growth that began in Dec'10 continues. We expect the industrial growth in FY12 to be better than in FY11, although the improvement is likely to be more marked in the second half of the year. Introduction of the new IIP series is a welcome move.

n       IIP growth moderates. As per the old series, the index of industrial production (IIP) grew 4.4% in Apr '11, below consensus and our estimates. The new IIP series with 2004-05 as base, posts 6.3% IIP growth in Apr '11, following 8.8% growth in Mar '11.

n       New series a better representation. Since the new IIP series takes into account the item basket as per the more recent production behavior, this series indicates a much closer reflection of the present industrial scenario.

n       Manufacturing sector falters. The manufacturing sector grew 4.4% in Apr '11 after growing 8.4% in Mar '11. On a seasonally adjusted 3-month over 3-month annualized (3M/3M SAAR) basis, the sector has shown recovery in growth since Dec '10.

n       Capital goods remains volatile. After rising 13.6% in Mar '11, capital goods production growth slowed down to 2.5% in Apr '11.

n       Consumer goods growth decelerates. Consumer goods grew 5.9% in Apr '11 following 8.2% growth in Mar '11. Consumer durables decelerated to 9.2% vs. 12.7% in Mar '11. Consumer non-durables (+4.5%) also witnessed a softening in growth in Apr '11.

n       Industry assessment. The IIP data in recent years has often been colored by factors such as base effect and cyclical factors. Despite the largely disappointing IIP data since Nov'10, the adjusted (3M/3M SAAR) data shows that the Indian industrial growth has been accelerating since Dec'10. We expect the FY12 IIP growth to be better than FY11, although much of the improvement is likely to apparent only in 2HFY12.

n       Policy outlook. Despite disappointing headline growth (GDP, IIP) numbers, high and stubborn inflation is being viewed by the government and the RBI as the key macroeconomic challenge. Accordingly, we expect the forthcoming monetary policy review this month to raise the policy rates (repo/reverse-repo) by 25 bps. We, however, feel that post June '11, the rate hike in the reminder of FY12 would remain limited to 25 bps.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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