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IIP & CPI Inflation Data Release | Economy

September 13, 2013

IIP & CPI Inflation Data Release
IIP and CPI inflation surprise positively
Key highlights

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

As per Quick Estimates on the Index of Industrial Production (IIP), industrial output for July 2013 surprised positively, with 2.6% growth, in contrast with market expectations of a 0.5% contraction.

The July 2013 IIP expanded after two straight months of contraction. It compares with a decline of 1.8% in the previous month and 0.1% in July 2012.

The spurt in IIP growth can be mainly attributed to the 15.6% expansion in capital goods production.

 

Excluding the capital goods index, the IIP reported a modest 0.7% growth. On a cumulative basis, during April – July of FY2014, the IIP reported a marginal 0.2% decline as mining and manufacturing posted a de-growth of 4.0% and 0.2% respectively and electricity gained by 4.0%.

IIP data for June 2013 has been revised upwards by 40bp owing to a lower 1.7% de-growth in manufacturing production than reported earlier.

The Consumer Price Index (CPI) inflation for August 2013 moderated slightly to come in at 9.5% as against 9.6% in July 2013 owing mainly to deceleration in rural fuel inflation.

We

believe

that

the

IIP

for

August

2013

is

also

likely

to

expand

at a similar pace owing to strong electricity production, pick up in exports and performance of automobile production.

IIP: Performance on Sector-wise classification
In terms of sector-wise classification, mining continued to contract for the tenth straight month due to persistent decline in crude and natural gas production. The sector reported a de-growth of 2.3% in July 2013 as against a contraction of 4.3% in June 2013 and 3.5% in the corresponding period of the previous year. The Manufacturing sector posted a growth of 3.0% as compared to 1.7% decline in June 2013 and flat performance in the corresponding period of the previous year. The expansion comes on the back of two straight months of de-growth and we believe it could be attributed to the boost from export demand. Exports reported a double-digit growth in the months of July and August 2013 after a dismal performance since 2012, owing to improvement in external demand from recovery in advanced economies coupled with the INR depreciation. We continue to believe that a sustained trend in export growth would mean a positive boost for the manufacturing sector. Electricity production gained pace and reported a 5.2% growth during July 2013 after a flat performance in the previous month. We believe that electricity production for the month of August 2013 is also likely to come in higher, boosted by a low base effect.

Please refer to important disclosures at the end of this report

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IIP & CPI Inflation Data Release

Exhibit 1: Trends in industrial production (%, yoy)
Weights General Index Sector-wise Classification Mining Manufacturing Electricity Use-based Classification Basic goods Capital goods Intermediate goods Consumer goods - Consumer durables - Consumer non-durables
Source: MOSPI, Angel Research

Jul-13 2.6 (2.3) 3.0 5.2 1.7 15.6 2.4 (0.9) (9.3) 6.8

Jun-13 (1.8) (4.3) (1.7) (1.5) (5.8) 1.3 (1.9) (10.4) 5.7

May-13 (2.8) (5.9) (3.6) 6.2 (0.9) (2.6) 1.0 (7.1) (18.4) 3.0

Jul-12 (0.1) (3.5) 2.8 1.0 (5.8) 0.1 0.7 0.8 0.6

FY14YTD (0.2) (4.0) (0.2) 3.9 0.2 1.8 1.8 (2.0) (12.0) 6.8

FY13YTD (0.2) (2.0) (0.6) 5.5 2.7 (16.8) 0.6 3.1 6.1 0.6

1000 141.57 755.27 103.16 456.82 88.25 156.86 298.08 84.60 213.47

Exhibit 2: Trends in industrial output growth
(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) Apr-12 May-12 (0.1) (1.26) (2.0) Jul-12 Sep-12 Aug-12 Oct-12 Jun-12 (0.7) (1.0) Nov-12 (0.6) (2.8) Jul-13 Apr-13 May-13 Mar-13 Jan-13 Dec-12 Feb-13 Jun-13 (1.8) 2.5 2.0 2.5 0.6 3.5 1.5 2.6 IIP growth 8.4

Exhibit 3: Contribution of use-based industries
(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) Nov-12 Jul-12 Apr-13 May-13 Aug-12 Sep-12 Mar-13 Oct-12 Dec-12 Jan-13 Feb-13 Jun-13 Jul-13
Basic Capital Intermediate Consumer Durables Consumer Non-durables

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

IIP: Performance in the Use-based category
The Capital Goods index reported a spurt in growth on the back of increase in production of components such as ‘Cable, Rubber Insulated’ (336.0%) and ‘Ship Building and Repairs’ (58.7%). It posted a robust 15.6% growth in July 2013 as compared to a contraction of 5.8% in the previous month. Excluding the Capital Goods index, the IIP reported a modest growth of 0.7%. Production of basic goods and intermediate goods also reported a positive performance. Consumer goods production remained under pressure for the third straight month owing to the sharp 9.3% contraction in durable goods production for the eight consecutive month. Consumer non-durables continued to support the index owing mainly to growth in components like ‘Wearing apparel and dressing’ and ‘Food products’. It reported a 6.8% expansion as compared to a growth of 5.7% in June 2013 and 0.6% in July 2012.

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IIP & CPI Inflation Data Release

CPI inflation moderates to 9.5% in August 2013
The combined (rural + urban) Consumer Price Index (CPI) inflation for August 2013 decelerated for the second consecutive month and came in slightly lower at 9.5% from 9.6% in July 2013. The deceleration can be mainly attributed owing to fuel inflation easing to 7.6% in August 2013 as against 8.4% in the previous month. Interestingly, rural inflation decelerated to 8.9% from 9.1% in July 2013 while urban inflation picked up to 10.3% from 10.2% in July 2013. This is mainly because rural fuel inflation eased by 120bp sequentially to 6.8% in August 2013 but urban fuel inflation remained largely stable at 8.9% in August 2013. The overall inflation in food articles (accounting for almost 50% weightage in the index) remained stable sequentially, coming in at 11%. Inflation in the miscellaneous category constituted by medical, education, transport, recreation etc paced up to 7.1% from 6.7% in July 2013 pushing up core CPI inflation. Core CPI inflation has been relatively sticky as compared to core WPI inflation and has marked a rising trend since the past 3 months. It stood at 8.2% as compared to 8.0% in July 2013.

Exhibit 4: Trends in Consumer Price Index inflation (%, yoy)
Weights Combined CPI Inflation 1) Food, Beverages and Tobacco 1.1) Cereals and Products 1.2) Pulses and Products 1.3) Oils and Fats 1.4) Egg, Fish and Meat 1.5) Milk and Products 1.6) Condiments and Spices 1.7) Vegetables 1.8) Fruits 1.9) Sugar etc. 1.10) Non-Alcoholic Beverages 1.11) Prepared Meals etc. 1.12) Pan, Tobacco and Intoxicants 2) Fuel and Light 3) Housing 4) Clothing, Bedding and Footwear 5) Miscellaneous
Source: MOSPI, Angel Research

Aug-12 10.0 12.0 8.6 16.0 18.4 11.6 11.5 2.8 20.8 8.0 17.5 9.4 9.0 10.7 7.5 10.8 10.6 6.8

Mar-13 10.4 12.3 17.6 11.4 11.7 14.4 7.7 5.1 12.2 10.7 11.7 10.3 10.5 11.1 8.3 10.5 10.6 7.4

Apr-13 9.4 10.7 16.7 10.9 7.5 13.7 7.0 5.5 5.8 8.0 10.5 10.3 10.3 9.9 8.1 10.6 10.3 7.0

May-13 9.3 10.7 16.3 9.6 5.5 12.5 7.1 6.4 10.0 6.0 9.2 10.5 10.3 9.5 8.5 10.7 9.7 6.1

Jun-13 9.9 11.7 17.5 8.9 5.2 12.8 8.0 7.7 14.7 7.4 9.1 10.9 10.5 9.7 8.6 10.7 9.6 6.2

Jul-13 9.6 11.0 15.9 5.6 2.8 13.7 8.1 7.4 16.1 6.8 5.4 10.2 10.0 8.7 8.4 10.6 9.3 6.7

Aug-13 9.5 11.0 14.1 1.7 0.8 13.7 7.9 6.2 26.5 5.2 -2.5 10.1 9.8 8.7 7.6 10.5 9.0 7.1

100.0 49.7 14.6 2.7 3.9 2.9 7.7 1.7 5.4 1.9 1.9 2.0 2.8 2.1 9.5 9.8 4.7 26.3

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IIP & CPI Inflation Data Release

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IIP & CPI Inflation Data Release

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