IIP Update December 2012 | Economy

February 12, 2013

IIP Update December 2012

Industrial production declines by 0.6%
Key highlights
As per Quick Estimates on the Index of Industrial Production (IIP), industrial activity contracted by 0.6% yoy as compared to de-growth of 0.8% in November 2012 yoy and 2.7% yoy in December 2011. In the April - December 2012 period, the index reported a subdued 0.8% growth as compared to 3.7% growth in the corresponding period of the previous year. Growth in IIP for November 2012 has been revised downwards to contract by 0.8% yoy as compared to the earlier estimate of contraction of 0.1% yoy as estimates of manufacturing, capital goods and consumer goods were revised downwards.

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

Performance on sectoral basis

On a yoy basis, Mining witnessed a 4.0% decline during the month as weakness in the sector persisted on account of decline in production of coal and natural gas. The Manufacturing sector, accounting for 75.5% of the overall index reported a 0.7% contraction during the month as compared to growth of 2.8% in December 2011. Growth in Electricity paced at 5.2% as compared to 2.4% in the previous month. However it was lower than 9.1% growth reported in December 2011. On a cumulative basis, in the April - December 2012 period, the Mining sector contracted by 1.9%, Manufacturing slowed to 0.7% while Electricity sector reported a 4.5% growth.

Performance in the Use-based category

Under the Use-based classification, the Capital goods index continued to remain volatile, reporting a 0.9% de-growth during the month as compared to 8.5% de-growth in the previous month and 16.0% de-growth in December 2011. The Capital goods index has persistently reported a double-digit contraction on a FYTD basis since the beginning of the fiscal year. In the April December 2012 period, it contracted by 10.1% as compared to a 2.9% decline in the corresponding period of the previous year. Consumer goods production which was boosted in October 2012 (13.7% growth) on account of pre-festival season demand has also contracted in December 2012 by 4.2% as compared to a healthy 10.1% growth in the corresponding period of the previous year. Consumer durables, in particular, contracted by 8.2% reflecting the possible drawing down of inventories and weak consumer sentiment.

Please refer to important disclosures at the end of this report

IIP Update December 2012

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

Dec-12 (0.6) (4.0) (0.7) 5.2 2.6 (0.9) (0.1) (4.2) (8.2) (1.4)

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

Oct-12 8.3 9.8 5.5 4.1 7.5 9.3 13.7 16.9 10.7

Dec-11 2.7 (3.3) 2.8 9.1 5.5 (16.0) (1.5) 10.1 5.1 13.8

FYTD 2013 0.8 (1.9) 0.7 4.5 2.8 (10.1) 1.5 2.6 3.7 1.7

FYTD 2012 3.7 (2.6) 4.0 9.4 6.2 (2.9) (0.7) 5.7 5.2 6.1

1000 141.57 755.27 103.16 355.65 92.57 265.14 286.64 53.65 232.99

Exhibit 2: Dismal industrial performance

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) Feb-12 Jan-12 (2.8) May-12 Mar-12 Apr-12 (1.3) (2.0) Nov-12 4.5 Aug-12 Sep-12 Oct-12 Jun-12 Jul-12 Dec-12 1.0 (0.1) (0.7) (0.8) (0.6) 4.3 2.5 2.0 IIP growth 8.3

Source: MOSPI, Angel Research

Exhibit 3: Broad-based slowdown across sectors

(%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 (2.0) (4.0) Source: MOSPI, Angel Research IIP Mining (2.6) (1.9) Manufacturing Electricity 3.7 0.8 4.0 0.7 9.4 Apr-Dec 2011 Apr-Dec 2012

February 12, 2013

IIP Update December 2012

Growth of core Industries

The Index for Eight Core Industries, having a combined weight of almost 38% in the IIP, reported a growth of 2.6% during the month as compared to a growth of 1.6% in November 2012 and 4.9% growth in December 2011. In the April December 2012 period, the eight core industries reported a 3.3% growth, better than the overall IIP growth during the period. The performance was largely supported by growth in petroleum refinery (6.9%) and coal (5.7%) production as compared to the corresponding period of previous year.

Exhibit 4: No sustainable improvement in sight

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) May-12 Mar-12 Sep-12 Oct-12 Jan-12 Jun-12 Jul-12 Aug-12 Nov-12 Dec-12 Feb-12 Apr-12 IIP Eight core industries

Source: MOSPI, Angel Research

Policy Outlook
We believe that the IIP numbers during the April December 2012 period reflect a broad-based slowdown across sectors particularly manufacturing, capital goods and consumer goods as compared to performance in the corresponding period of the previous year. The November 2012 IIP figure has also been revised downwards adding to the disappointment over the CSOs modest quick estimate of 5.0% real GDP growth in FY2013 and revision in FY2012 GDP growth to 6.2% from 6.5%. We continue to believe that the overall IIP print for FY2013 is likely to come in below the 3.0% growth reported in FY2012. As far as RBIs monetary policy stance is concerned, it is likely to be more supportive towards growth and we expect a 25bp cut in the repo rate in March, maintaining our view of a further 50bp 75bp repo cut for the rest of the fiscal year.

February 12, 2013

IIP Update December 2012

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

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February 12, 2013

IIP Update December 2012

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February 12, 2013