Oct 12, 2011

Key Takeaways - IIP August 2011

Index of Industrial Production (IIP) has grown at 4.1% for August 2011 (below market expectations of ~4.7%) compared to 3.8% in July 2011 (revised upward from 3.29%) and 4.48% in August 2010. Basic goods and electricity sectors recorded good growth while growth in manufacturing, capital goods and consumer goods was subdued. Mining sector reported negative growth on the back of lackluster performance of the coal and gas sectors.


Industrial production has increased 5.6% for the April-August 2011 period, showing deceleration in growth from 8.7% increase recorded in April-August 2010.

Sector-wise growth indicator

·         Manufacture sector growth at 4.48% Vs 4.62% (YoY) – Flat growth on YoY basis while increased sharply from 2.3% recorded in the last month (constitutes about 76% of the industrial production)

·         Mining sector growth at -3.37% Vs 5.92% (YoY) –. Continued lackluster performance of the coal, iron ore and gas sectors. Coal output growth has been constrained on account of new mining projects being delayed for environmental reasons. This has been the trend over the last several months

·         Capital sector goods growth at 3.9% Vs 4.66% (YoY) – The capital goods production series has been showing heightened volatility from last few months due to its inherent lumpiness.

·         Electricity sector growth at 9.53% Vs 1.04% (YoY) – The growth was on a very low base.

·         Basic goods growth at 5.41% Vs 3.79% (YoY)

·         Intermediate goods growth at 1.32% Vs 5.88% (YoY)  

·         Consumer durables goods growth at 4.55% Vs 8.12% (YoY)  - Overall slowdown is apparent in motor vehicles, etc; however the incremental growth is stronger in rural areas   

·         Consumer non durables goods growth at 2.82 % Vs 1.80% (YoY)   


Conclusion – IIP headline data were a tad poor than the expectations. The overall numbers suggest the persisting slowdown across segment. On seasonally adjusted basis the month on month number has been flattish (Aug vs July 2011). The desired transmission by RBI is happening leading to industrial production growth slowing from ~7% to ~5%. This would also have repercussions on the services sector growth going forward.

The data points would continue to disappoint over the next few months and therefore the equity markets in the short term would be guided by policies to tackle long term trade deficits, FDI policy, infrastructure bottlenecks, etc.

-By Aditya Birla Money Research

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