IIP & CPI Inflation Data Release | Economy

July 12, 2013

IIP & CPI Inflation Data Release

IIP and CPI inflation continue to 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 May 2013 continued its poor show as it declined by 1.6% (in contrast with market expectations of a growth of 1.5%).

The production data continues to reflect weakness on the demand-side, ie in investment as well as consumption demand.

The index for April 2013 has been revised downwards owing to revision in mining and manufacturing data. Consequently, growth has decelerated by 40bp to 1.9% from 2.3% reported earlier.

The Consumer Price Index (CPI) inflation for June 2013 also disappointed by unexpectedly touching almost double-digit growth at 9.9% as against 9.3% in May 2013.

Going ahead though we expect CPI inflation to moderate. We are positive on the trajectory for food inflation owing to the decent rabi production, plus we expect a pick-up in sowing of kharif crops since a reasonable hike in MSP prices has been announced by the government for kharif crops.

Performance on Sector-wise classification

In terms of sector-wise classification, electricity production paced higher but decline in production in mining and manufacturing sectors weighed on overall output. The Mining sector continued to contract for the eighth consecutive month and reported a 5.7% decline in May 2013 as against a 0.7% contraction in the corresponding period of the previous year, owing to decline in production of coal, crude oil and natural gas. The Manufacturing sector reported a 2.0% decline after having posted tepid growth since January 2013. Amongst its components Furniture (18.7% growth) and Wearing apparel; dressing and dyeing of fur (14.3% growth) reported the highest growth; while the component Office, accounting & computing machinery (30.0% de-growth) continued weighing on production for the seventh straight month. In the near-term, a meaningful recovery in the manufacturing sector still looks unlikely as consumption and investment side of growth remains sluggish. Exports have reported about 4.6% degrowth in June 2013, so manufacturing activity is unlikely to get support in the near term. But we believe that the sharp INR depreciation and a recovery in global growth would eventually improve the outlook for exports in the medium term. The Electricity sector reported a healthy 6.2% growth as compared to a growth of 4.2% in April 2013 and 5.9% in May 2012. Excluding the performance of this sector, the IIP contraction stands at a steeper 2.2%.

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

May-13 (1.6) (5.7) (2.0) 6.2 (0.4) (2.7) 1.5 (4.0) (10.4) 1.7

Apr-13 1.9 (3.3) 2.3 4.2 2.0 (0.1) 2.6 2.1 (8.9) 11.5

Mar-13 3.4 (2.7) 4.2 3.5 3.0 9.0 2.4 1.8 (4.4) 6.9

May-12 2.5 (0.7) 2.6 5.9 4.4 (8.6) 3.4 4.4 9.7 (0.1)

FY2013 1.1 (2.4) 1.3 4.0 2.4 (6.1) 1.6 2.4 2.0 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: No sustainable recovery in production

(%) 15.0 12.0 9.0 6.0 3.0 (3.0) (6.0) May-10 May-11 May-12 May-13 May-13 Mar-10 Mar-11 Mar-12 Nov-10 Nov-11 Nov-12 Mar-13 Mar-13 Jan-12 Jan-11 Sep-10 Sep-11 Sep-12 Jan-13 Jan-13 Jul-10 Jul-11 Jul-12 IIP 3MMA IIP

Source: MOSPI, Angel Research

Exhibit 3: Slowdown in investment and consumption demand

(%) 40.0 30.0 20.0 10.0 (10.0) (20.0) (30.0) Nov-10 Nov-11 May-10 May-11 May-12 Nov-12 Mar-11 Mar-12 Sep-10 Sep-11 Sep-12 Jan-11 Jan-12 Jul-10 Jul-11 Jul-12 3MMA capital goods 3MMA consumer goods

Source: MOSPI, Angel Research

July 12, 2013

IIP & CPI Inflation Data Release

Performance in the Use-based category

As per the use-based classification, Consumer Durables continued to weigh on the overall IIP for the second consecutive month. The 4.0% decline in Consumer Goods production can be attributed to the sharp 10.4% contraction in Consumer Durables. Growth in consumer non-durables also slipped to 1.7% as compared to 11.5% in April 2013 and despite a low base (0.1% decline) of the previous year. The persistence of weakness in consumption is mirrored in slackening of production in consumer goods. We believe that an improvement in consumption, particularly for durable goods, largely rests on transmission of monetary policy rate cuts into the economy. The Capital Goods index posted a 2.7% decline despite a low base, reflecting continued sluggishness in the investment climate and dashing hopes of a sustainable recovery. The April 2013 print for capital goods has been revised lower to reflect a 0.1% de-growth as compared to 1.0% growth reported earlier while the 9.0% growth in the months of February and March 2013 are aberrations owing to a low base.

Exhibit 4: Use-based goods contribution to IIP growth

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

Source: MOSPI, Angel Research

July 12, 2013

IIP & CPI Inflation Data Release

CPI inflation inches upwards to 9.9% in June 2013

In contrast with expectations of a further moderation in CPI inflation, the combined (rural + urban) inflation for June 2013 accelerated to almost double-digits at 9.9% from 9.3% in May 2013. Inflation in food articles in the CPI (accounting for almost 50% weightage in the index) came in higher at 11.7% as compared to 10.7% in the previous month and this can be attributed mainly to seasonal factors. Fuel inflation also inched higher to 8.7% during June 2013 as against 8.5% in the previous month. Worryingly though, core (non-food, non-fuel) CPI inflation has also accelerated to 8.2% in June 2013 as against a moderation to 7.7% in the previous month.

Exhibit 5: 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 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

Jun-12 9.9 10.8 4.9 9.4 16.6 11.5 12.7 2.0 27.8 6.9 6.0 8.9 8.9 10.6 10.3 10.6 6.7 11.1 10.5 8.2 6.7 6.7 3.7 8.5 7.4 11.1 12.3

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 6.4 10.0 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 5.3 5.4 6.7 5.1 11.4

Jun-13 9.9 11.7 17.6 8.8 5.2 12.7 8.0 7.7 14.6 7.5 9.1 10.9 10.5 9.7 8.7 10.7 14.2 9.9 8.6 6.2 6.5 7.9 5.8 5.1 6.8 4.7 11.3

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

Going ahead, we are positive on the trajectory for food inflation owing to the decent rabi production, pick-up in sowing of kharif crops and reasonable MSP price hikes announced by the government for the kharif crops. The sowing of kharif crops has reached about 517.7 lakh hectares ie a 51.6% pick-up as compared to the coverage during the corresponding period of the previous year.

July 12, 2013

IIP & CPI Inflation Data Release

Research Team Tel: 022 - 39357800

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July 12, 2013

IIP & CPI Inflation Data Release

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July 12, 2013