IIP & CPI Inflation Data Release | Economy

June 12, 2013

IIP & CPI Inflation Data Release

Weak IIP and stubborn CPI inflation disappoint
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 growth in April 2013 came in at a lower-than-expected 2.0% (as against market expectations of 2.5%).

The subdued growth is particularly disappointing since it comes on the back of a low base of April 2012 when the IIP had reported a 1.3% contraction.

This weakness can be mainly attributed to the dismal performance of capital goods and a contraction in consumer durables during the month.

On the positive side, the index for March 2013 has been revised sharply upwards owing to revision in production in the manufacturing sector. Overall, the IIP growth for March 2013 now stands at 3.4% as against 2.5% reported earlier.

The Consumer Price Index (CPI) inflation for May 2013 reversed the trend of an uptick, while it came in higher than market expectations at 9.3%. This is similar to the 9.4% rise in inflation reported in April 2013.

Although industrial production remains dismal, we believe hopes of a rate cut by the Reserve Bank of India (RBI) in its June policy meeting are dampened, owing to the still-elevated CPI inflation, sharp INR depreciation and expectation of a higher trade deficit in May 2013.

Performance on Sector-wise classification

The Manufacturing sector reported a 2.8% growth during April 2013 as against a growth of 4.2% in the previous month and 1.8% contraction in the corresponding period of the previous year. Amongst its components Wearing apparel; dressing and dyeing of fur reported the highest growth (86.6%) followed by Electrical machinery and apparatus (25.4%); while the laggard Office, accounting & computing machinery (38.9% de-growth) weighed pronouncedly on capital goods production as well. Crude oil and natural gas production declined by 1.2% and 17.4% respectively, despite reporting a contraction in the previous year. The stress on the mining sector thus continued and overall production declined further by 3.0% during the month. On a 3MMA basis, production declined by 4.4% as compared to a 0.5% decline a year ago. We continue to believe that the decision on reopening Category B mines in Karnataka is likely to improve production in the sector to some extent with a lag of about two quarters. In the absence of meaningful reform measures though the overhang on growth in the Mining sector is expected to continue in FY2014 as well. On a 3MMA basis, growth in the Electricity sector decelerated for the fourth straight month to 0.5%, its lowest level. During April 2013, growth came in at a marginally positive 0.7%, lower than 3.5% in the previous month and 4.6% in April 2012.

Please refer to important disclosures at the end of this report

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

Apr-13 2.0 (3.0) 2.8 0.7 1.3 1.0 2.4 2.8 (8.3) 12.3

Mar-13 3.4 (2.7) 4.2 3.5 3.0 9.0 (0.2) 1.8 (4.4) 6.9

Feb-13 0.5 (7.6) 1.9 (3.2) (1.8) 8.7 (1.0) 0.4 (2.4) 2.5

Apr-12 (1.3) (2.8) (1.8) 4.6 1.9 (21.5) (1.8) 3.7 5.4 2.3

FY2013 1.1 (2.4) 1.3 4.0 2.4 (6.1) 1.4 2.4 2.1 2.7

FY2012 2.9 (2.0) 3.0 8.2 5.5 (4.0) (0.6) 4.4 2.6 5.9

1000 141.57 755.27 103.16 456.82 88.25 156.86 298.08 84.60 213.47

Exhibit 2: Key trends in IIP growth Capital goods optically better

(%) 10.0 5.0 (5.0) (10.0) (15.0) (20.0) (25.0) Nov-12 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Aug-12 Oct-12 Jan-13 Feb-13 Mar-13 Dec-12 Sep-12 Apr-13 Jun-12 Jul-12 3MMA IIP 3MMA capital goods 3MMA consumer goods

Source: MOSPI, Angel Research

Performance in the Use-based category

Amongst the use-based components, Consumer Durables heavily dragged down the growth of the overall IIP index while the contribution of Capital Goods to growth remained flat. The Capital Goods index posted a dismal 1.0% growth in spite of the low base effect of the previous year. On a 3MMA basis, Capital Goods production paced up to 6.8%, the highest in 20 months. But the pick-up in growth is supported by the sharp contraction of 20.1% and 21.5% in March and April 2012 respectively.

June 12, 2013

IIP & CPI Inflation Data Release

Exhibit 3: Use-based goods contribution to IIP growth

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) Nov-12 Apr-12 May-12 Aug-12 Oct-12 Jan-13 Feb-13 Mar-13 Sep-12 Dec-12 Apr-13 Jun-12 Jul-12 Basic Capital Intermediate Consumer Durables Consumer Non-durables

Source: MOSPI, Angel Research

The 2.8% growth in Consumer Goods has been supported by growth in production in Consumer non-durables for the fourth consecutive month. Consumer nondurables reported a robust growth of 12.3% during April 2013. At the same time, the contraction in Consumer Durables production continued for the fifth straight month as it declined by 8.3% during April 2013. We believe that an improvement in this segment largely rests on transmission of monetary policy rate cuts through the banking system into the economy.

CPI inflation remains elevated at 9.3% in May 2013

The combined (rural + urban) CPI inflation for May 2013 moderated marginally to 9.31% from 9.39% in April 2013. Although the trend of an uptick seen in the previous months has been reversed with retail inflation moderating for the third straight month, it continues to remain elevated. CPI inflation remains more than 440bp higher than Wholesale Price Index (WPI) inflation. This can be attributed to the almost 50% weightage for Food articles in the CPI. Inflation in food and related products remained largely unchanged at 10.7% as compared to the previous month. Fuel inflation inched slightly higher to 8.5% during May 2013 as against 8.1% in the previous month. Positively, core CPI inflation has decelerated to 7.6% in May 2013 as against 8.3% in April 2013. But we believe that the still-elevated CPI inflation coupled with sharp INR depreciation and expectation of a higher trade deficit in May 2013 are likely to limit the headroom for the RBI to cut the repo rate in its June policy meeting.

June 12, 2013

IIP & CPI Inflation Data Release

Exhibit 4: Trends in Consumer Price Index (CPI) 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 4.1) Clothing and Bedding 4.2) Footwear 5) Miscellaneous 5.1) Medical Care 5.2) Education, Stationary etc. 5.3) Recreation and Amusement 5.4) Transport and Communication 5.5) Personal Care and Effects 5.6) Household Requisites 5.7) Others
Source: MOSPI, Angel Research

May-12 10.4 10.5 4.8 7.9 18.1 10.6 13.7 3.0 26.7 4.0 5.4 9.4 9.1 10.7 10.7 15.7 11.4 11.3 11.1 8.1 6.7 7.5 3.9 8.2 7.7 10.5 12.3

Dec-12 10.6 13.0 13.6 13.5 16.7 11.7 8.2 2.6 25.6 10.6 13.6 9.8 9.5 11.2 8.2 10.3 10.7 11.0 9.7 6.8 6.0 7.3 4.9 6.0 7.6 8.2 10.9

Jan-13 10.8 13.2 14.9 12.8 14.9 13.7 8.1 3.7 26.2 9.7 13.0 9.6 9.9 10.8 8.4 10.3 10.9 11.0 9.6 6.9 6.3 7.3 5.0 6.1 7.4 8.1 11.3

Feb-13 10.9 13.4 16.9 12.3 14.6 15.7 8.0 4.9 21.2 9.9 12.2 10.2 10.5 10.9 8.7 10.5 10.9 11.1 9.5 7.2 6.4 7.3 5.2 7.3 7.3 7.7 11.5

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 10.8 9.5 7.4 6.2 7.4 5.3 8.1 7.0 7.2 11.5

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 10.4 9.1 7.0 6.6 7.5 5.3 7.4 6.8 5.5 11.4

May-13 9.3 10.7 16.3 9.6 5.5 12.5 7.1 6.5 9.8 6.0 9.2 10.5 10.3 9.5 8.5 10.7 9.7 9.9 8.6 6.1 6.5 7.2 5.2 5.4 6.7 5.1 11.4

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 4.1 0.7 26.3 5.7 3.4 1.4 7.6 2.9 4.3 1.1

June 12, 2013

IIP & CPI Inflation Data Release

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

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June 12, 2013

IIP & CPI Inflation Data Release

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June 12, 2013