IIP Update September 2012 | Economy

November 12, 2012

IIP Update September 2012

Decline in IIP during the month disappoints
Key highlights
As per the Quick Estimates on the Index of Industrial Production (IIP), industrial growth during September 2012 surprised negatively by reporting a de-growth of 0.4% yoy as compared to expectations of a 2.8% yoy growth. The decline in industrial activity is disappointing mainly because a moderate growth during the month was expected owing to healthy growth in the core sector during the month and the surprise positive growth in August 2012. At the same time, the IIP for August 2012 has been revised downwards to 2.3% as compared to the earlier estimate of a 2.7% growth. On a cumulative basis, in the April - September 2012 period, the index has reported a nearly stagnant growth of 0.1% after witnessing healthy growth of 5.1% in the corresponding period of the previous year. On a 3MMA basis too, growth remained at a low level of 0.5% during the month. Performance on sectoral basis On a yoy basis, Mining witnessed an above 5.0% print after nearly 21 months, reporting a 5.5% growth as compared to 1.9% growth in the previous month and de-growth of 7.5% in September 2011. However, this better-than-expected performance can be attributed to an exceptionally low base effect. The Manufacturing sector with the highest weightage of 75.5% slipped into negative territory, contracting by 1.5% during the month as compared to 2.3% growth in August 2012. The Electricity sector reported a modest growth of 3.9% during the month vis-a-vis growth of 9.0% in September 2011. On a cumulative basis in the April - September 2012 period, Mining reported a flat growth while the Manufacturing sector contracted by 0.5%. Compared to these sectors, the Electricity sector has reported a modest growth of 4.6% during the period. In spite of its better performance however, growth has decelerated for the third straight month. In the manufacturing sector, as per the 2-digit level classification in terms of industries, 12 out of the 22 industry groups recorded positive growth. Publishing, printing & reproduction of recorded media reported the highest growth of 16.5% while Office, accounting and computing machinery has shown the largest negative growth of 30.7%. Performance in the Use-based category Under the Use-based classification, on a yoy basis, Basic goods reported a moderate growth of 3.5% during the month compared to a 3.4% growth in the previous month.

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

Please refer to important disclosures at the end of this report

IIP Update September 2012

Intermediate goods reported a growth of 1.8% during September 2012 as compared to a contraction of 1.4% in the corresponding period of the previous year. However, growth decelerated from the 2.7% level witnessed during the previous month. The index for Capital goods continued to remain volatile and under severe stress, witnessing a de-growth of 12.2%, following a decline in growth by 4.4% in August 2012. It can be partially attributed to the high base in the previous year in spite of a 6.5% contraction. After a positive print of 3.3% growth in Consumer goods sector in August 2012, growth witnessed a contraction of 0.3% in September 2012. This can be mainly attributed to a decline of 1.8% in Consumer durables while Consumer non-durables reported a growth of 1.1%. Eight Core Industries: The Index for Eight Core Industries, having a combined weight of 37.9% in the IIP, reported the highest growth in the past seven months at 5.06% in September 2012 as compared to 2.32% in August 2012. It was mainly supported by double-digit increase in production of coal (21.4%), refinery products (11.4%) and cement (13.4%) amidst a decline in natural gas (-14.9%) and crude oil (-1.7%) production. Owing to the general moderation in growth, the cumulative growth of eight core industries in the April September 2012 period came in lower at 3.2% as compared to 5.0% in the corresponding period of the previous year. Manufacturing Purchasing Managers Index (PMI): Indias HSBC Manufacturing PMI remained steady to a large extent at 52.9 during October 2012 as compared to 52.8 in September 2012 due to a pick-up in new orders and drop in input price index. However, Services PMI declined to 53.8 in October 2012 as compared to 55.8 in September 2012 amidst a decline in new orders and hiring levels. Future outlook: On a fiscal year-to-date basis, the index has reported dismal growth of 0.1% as compared to a growth of 5.1% during April - September 2011. Amongst other components, Capital goods have witnessed the steepest decline by 13.7% during the period, reiterating concern over the deterioration in investment climate. Since a turnaround in capex takes time and gets reflected with a lag, industrial production is expected to remain subdued even in the second-half of the fiscal and thus we believe that the industrial production print for FY2013 is likely to stabilize at a low level. As far as a change in monetary policy stance is concerned, we continue to believe that at least in the near term, inflation remains a concern for the Reserve Bank of India to ease rates. Post December 2012, we expect an easing of about 25 50bp in the policy rate.

November 12, 2012

IIP Update September 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

Sep-12 (0.4) 5.5 (1.5) 3.9 3.5 (12.2) 1.8 (0.3) (1.7) 1.1

Aug-12 2.3 1.9 2.3 1.9 3.4 (3.4) 2.7 3.3 0.6 5.8

Jul-12 (0.2) (1.6) (0.4) 2.8 1.0 (4.5) (1.2) 0.5 0.6 0.3

Sep-11 2.5 (7.5) 3.1 9.0 5.3 (6.5) (1.4) 5.7 8.9 2.7

1000 141.57 755.27 103.16 355.65 92.57 265.14 286.64 53.65 232.99

Exhibit 2: Trends in IIP growth (%, yoy)

10.5 8.5 6.5 4.5 2.5 0.5 (1.5) (3.5) (5.5) Apr-11 May-11 Jun-11 Sep-11 Aug-11 Jul-11 (5.0) Feb-12 Apr-12 May-12 Jun-12 Nov-11 Mar-12 Aug-12 Dec-11 Sep-12 Oct-11 Jan-12 Jul-12 (1.3) (2.8) (0.2) (2.0) (0.4) 5.3 6.2 3.7 3.4 2.5 9.5 6.0 4.1 2.7 1.1 2.5 2.3

Exhibit 3: Disappointing cumulative IIP growth (%, yoy)

(%) 8 6 4 2 (2) Apr-May Apr-Jun (0.3) (0.3) Apr-Aug Apr-Jul Apr-Sep Aug-12 Jul-12 Sep-12 0.6 5.8 7.0 FY2011-12 6.1 FY2012-13 5.6

5.1

0.2

0.1

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

Exhibit 4: Manufacturing and Services PMI

60 58 56 54 52 50 48 Nov-11 Apr-12 Mar-12 Sep-12 Dec-11 Oct-12 Jan-12 Feb-12 Jul-12 May-12 Jun-12 Aug-12 Manufacturing PMI Services PMI

Exhibit 5: 3-Month-Moving-Average IIP

(%) 5 (5) (10) (15) (20) (25) Feb-12 May-12 Nov-11 Mar-12 Oct-11 Dec-11 Apr-12 Jan-12 Jun-12 3MMA IIP 3 MMA capital goods

Source: HSBC, Markit

Source: Angel Research

November 12, 2012

IIP Update September 2012

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E-mail: research@angelbroking.com

Website: www.angelbroking.com

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November 12, 2012

IIP Update September 2012

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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Varun Varma Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, Power, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com

November 12, 2012