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Apr 13, 2012

Industrial Production Economy Update; Feb IIP @ 4.1%; Jan IIP revised down to 1.1% from 6.8%

Industrial Production : Feb IIP @ 4.1%; Jan IIP revised down to 1.1% from 6.8%

Feb IIP growth @ 4.1%; Jan IIP revised downwards to 1.1% from 6.8%

IIP growth for Feb 2012 at 4.1%yoy came in line with our estimates, however below market expectation of ~6.5%. However, the highlight was revision in Jan-12 IIP to 1.1% yoy vs 6.8% as reported earlier. The revised indices for January, 2012 have undergone major changes led by sharp revision in sugar output from 134.08lakh tones to 58.09 lakh tones. The revised number was more in line with our base line estimate for the month at 1.8%.

We had highlighted then (March 12, 2012), that the few categories within the mfg sector have been camouflaging the underlying significant slow down in the IIP

·        Food Products and Beverages' has shown the highest growth of 92.6%, followed by 56.1% in 'Publishing, Printing and Reproduction of Recorded Media' and 29.9% in 'Medical, precision & optical instruments, watches and clocks'.

·        Industry group 'Electrical machinery & apparatus n.e.c.' has shown a negative growth of 30.5% followed by 14.1% in 'Office Accounting and Computing Machinery' and 13.8% in 'Radio, TV and Communication Equipment and Apparatus'.

We have also been highlighting that looking at the fact that the area under cultivation and initial estimates of crop production haven't been so high to warrant such spike in the manufactured food articles.

Slowdown looks more broadbased

On sequential basis IIP reported decline of 1.7% led by contraction in all the sub segments. While manufacturing output declined by 1.4%qoq, mining and electricity declined even higher by 2% and 4% respectively.  While 18 out of the 22 industry groups in the manufacturing sector have shown positive growth during the month of February 2012, 50% of the industries have grown at less than 5% during the month. Within the manufacturing sector, highest growth was reported in Printing & Publishing (60.1%), Medical, precision & optical inst (52.1%) and Motor vehicles, trailers & semi-trailers (16.4%). Negative growth was witnessed in Radio, TV and Communication Equipment and Apparatus (-15.9%), Office Accounting and Computing Machinery (-13.5%) and Machinery & Equipment (-9.4%).

Industrial sector continues to be in slowdown mode

The consumer durable production has contracted by a sharp 6.7% during the quarter. We are reasonably sure that excluding few items, the non-durable portion of consumers would have also shown a decline.  The core industry has shown remarkable come back during the month, growing at 6.8% yoy. However, this component has been very volatile in last few months. The leading indicators like order book growth and order booking for cap goods companies along with the non-food credit growth do not support the bounce back in the capital goods sector. As we highlighted earlier, more than 50% of the industries have grown at less than 5% during Feb-12. And excluding outliers, the growth in IIP would have been 3.5%

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