India's Industrial Output Expands 4% In November; Nothing To Cheer Yet

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Includes: EPI, INDA, INDL, INDY, INP, INXX, PIN
by: Finalytiks

Summary

India’s Industrial output expands 4% YoY in November, compared to previous month's contraction of 4% YoY.

Core industries (constituting 38% of industrial output) grows 8% YoY.

Consumer goods output yet to pick up, contracts for the sixth straight month.

Key catalyst to watch out for : Budget in Feb 2015 and a 50bps rate cut from central bank in March 2015.

We maintain our GDP growth forecast for Fiscal Year 2015 (April-March) at 5-5.5%.

The industrial production for November 2014 moved up, with the figures coming in at 3.8% growth year-on-year. The previous month recorded a contraction of 4.2% YoY. Core industries (constituting 38% of industrial output) grew 8.2% YoY during November 2014.

Source: MOSPI

Industry-wise growth

Manufacturing, constituting 75% of the industrial production index, expanded 3% YoY, against a contraction of 7.6% in the previous month. Mining slowed to 3.4% YoY (Oct'2014: 5.2%). Electricity production continued to be robust, jumping 10% YoY (Oct'2014: 13.3%).

The sector-wise details are given below:

Source: MOSPI

Of the major manufacturing industries, the 7 out of the top 8 sectors in manufacturing expanded:

Source: MOSPI

Contrary to October, 16 of the 22 manufacturing sectors expanded, which constitute ~83% of the industrial output. Six manufacturing sectors contracted, which dragged down the headline industrial production growth figure by 3%.

Among the core industries, electricity continued to grow at healthy rate, while cement too has grown at double digit this month. Natural gas and fertilizer industries continued to contract.

Source: MOSPI

Item-wise / Use-based growth

Based on the type of goods manufactured, consumer goods continued to contract for the sixth straight month, contracting 2% in November - consumer durable goods production contracted by 15%, while the consumer non-durable goods production grew 6%. Capital goods, the most volatile item of the index, expanded 7%; while intermediate goods production grew 4%. Basic goods (including mining and electricity), the largest component with ~46% weight in the index, grew a healthy 7%.

Source: MOSPI

Looking ahead: Budget in Feb. 2015 and Rate cut in March 2015

Despite showing positive number this month, the industrial production has grown only by 2.2% for the first 8 months of the current financial year. In the absence of a visible trend, we believe that there is nothing to cheer in the November numbers. We also see that the consumer demand is yet to pick up, having contracted in 16 of the past 18 months. Higher inflation, high interest rates and uncertainty about economic growth might have led to consumers putting off purchases. These factors could delay a much needed recovery in GDP, which is supposed to have bottomed out at 5% in the previous fiscal year (April-March).

December 2014 saw a slight upward movement in inflation rates, with the consumer-level prices rising at 5% year-on-year (compared to 4.4% in November). The higher inflation number compared to November was due to the wearing-off of base effect, and higher food prices.

The higher inflation number is within the central bank's (RBI) expectations. We maintain our first rate cut target of 50bps in March 2015, aided by benign price levels and clarity in fiscal direction. More importantly, watch out for the budget at the end of February 2015, as the major catalyst for reigniting economic growth. We maintain our GDP growth forecast for Fiscal Year 2015 (April-March) at 5-5.5%.

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