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As per the new


October 16, 2014

Sutapa Roy
E-mail: s-roy@microsec.in


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India's Industrial Production growth disappointed for the second consecutive month in
August 2014. Production grew by 0.4 percent YoY during August 2014, the same level
witnessed in July 2014 (revised downwards from 0.5 percent YoY). This decline was driven
by the poor performance of the Manufacturing sector, primarily on account of a 15.0
percent YoY decline in Consumer Durables production. Excluding the Consumer Durables
segment, the IIP posted a growth of 2.9 percent YoY in August 2014. However, on the flip
side, Mining grew for 10th consecutive months while Electricity registered double digit
growth for four out of five months of FY2014-15 so far. In the use-based segment, bulk of
the slowdown came from the Capital Goods sector, where the output fell 11.3 percent YoY.

In value terms, the Index of Industrial Production (IIP) decreased to 166.1 in August 2014
against 172.1 in July 2014, registering 3.5 percent sequential decline. During April-August of
FY2014-15, Industrial growth stood at 2.8 percent YoY against 0.0 percent YoY in the
corresponding period of FY2013-14.

Outlook: This slowdown in Industrial growth will definitely raise concerns regarding the
sustainability of Q1 FY2014-15 GDP growth number. Although, the Reserve Bank Governor
Raghuram Rajan indicated that the IIP growth has been brought down because of the
shutting down of Nokias manufacturing plant at Chennai but consecutive contraction in
Manufacturing, particularly in Consumer Durables sector hints at deep-rooted setback in the
economy. The slowdown in Exports also had an impact too. Nevertheless, we expect the
Industrial growth will witness a turnaround from the second half of FY2014-15 on account
of Government clearances and other administrative measures and possible rate cut by
Reserve Bank of India (considering fall in Inflation).

Exhibit 1: IIP Trend (YoY %)
Source: Bloomberg




Production of Manufacturing sector which accounts 75.5 percent in IIP index, declined by
1.4 percent YoY in August 2014 against a fall of 1.0 percent YoY registered in July. The
Index of Manufacturing Sector decreased to 172.9 against 180.8 in the previous month,
registering monthly decline of 4.4 percent. In terms of industries, 11 out of 22 industry
groups in the Manufacturing sector have shown negative growth during the month of
Manufacturing Sector
Industrial Production August 2014
On YoY basis, production
of Manufacturing sector
declined by 1.4 percent in
August 2014 against a fall
of 1.0 percent registered in
the previous month.
The Index of Industrial
Production grew by 0.4
percent in August 2014
from a year earlier, after
increasing by the same
rate in July 2014.


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August 2014 as compared to the corresponding month of the previous year. The industry
group Radio, TV and communication equipment & apparatus has shown the highest
negative growth of 48.8 percent YoY, followed by 43.9 percent YoY in Office accounting &
computing machinery and 17.8 percent YoY in Electricity machinery & apparatus n.e.c. on
the other hand, industry group Basic metals has shown the highest positive growth of 19.1
percent YoY, followed by 14.3 percent in Other transport equipment and 10.9 percent YoY
in Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather
products .

Exhibit 2: Manufacturing Trend (YoY%)
Source: Bloomberg




Production of Mining sector grew by 2.6 percent from a year earlier in August 2014, after
increasing by 1.2 percent YoY in July. However, on sequential basis, the index decreased to
116.6 against 117.5 in the previous month, registering MoM fall of 0.8 percent.



Consumer Goods sector registered a decline of 6.9 percent YoY in August 2014 compared
with a fall of 7.7 percent YoY registered in July. The index for Consumer Goods Sector stood
at 159.9 against 168.1 in the previous month. After growing in May 2014 for the first time in
18 month, Consumer Durable production declined for the 3rd consecutive month in August.
Production of Consumer Durable sector registered 15.0 percent YoY decline during the
month against a fall of 20.9 percent YoY registered in July. On the other hand production of
Consumer Non-durables sector too fell by 0.9 percent YoY against a growth of 2.4 percent
YoY in July.



Production of Capital Goods sector witnessed a decline of 11.3 percent YoY in August vis--
vis a decline of 3.9 percent YoY in July 2014. The Index of Capital Goods sector decreased to
217.4 against 260.8 in the previous month.

Mining Sector
Consumer Goods Sector
Capital Goods Sector
On YoY basis, production
of Consumer Durables
sector declined by 15.0
percent in August 2014,
after registering a fall of
20.9 percent in July 2014.


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Exhibit 3: Capital Goods Trend (YoY%)
Source: Bloomberg













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Exhibit4: I I P I NDEX
Particulars FY2014-15 FY2013-14
I ndex YoY(%) I ndex YoY(%) YoY (%) YoY (%)
Industrial Production 166.1 0.4 172.1 0.4 2.8 0.0
Manufacturing 172.9 -1.4 180.8 -1.0 1.7 -0.1
Mining 116.6 2.6 117.5 1.2 2.5 -3.6
Basic Goods 164.9 9.6 163.4 7.4 8.6 0.2
Intermediate Goods 152.5 0.3 155.5 3.0 2.5 2.4
Consumer Durables 218.7 -15.0 219.7 -20.9 -12.9 -11.2
Consumer Non Durables 136.6 -0.9 147.6 2.4 0.9 6.8
Capital Goods 217.4 -11.3 260.8 -3.9 4.3 0.7
Source: Bloomberg
Aug-14 Jul-14


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