Industrial Output Analysis by Fairwealth Securities

Industrial-outlookAfter posting a weak growth of 2.5% (revised from 1.6%) in Dec’10 , the Industrial growth recovered to 3.7% in Jan’2011 on the back of better manufacturing output mainly in the consumer goods segment. It is high base effect which pushed IIP growth in a slowdown phase since Nov’2010. Cumulative growth for the period Apr-Jan’2011 stands at 8.3% as against 9.5% in the corresponding period previous year.

Consumer Goods Segment registered a 9-month high growth of 11.3% on account of robust demand since the beginning of Q4 of FY11. Consumer Durables posted a growth of 23.3%, up from 18.8% in the previous month.

Consumer non Durables Segment too bounced back after witnessing a decline of 1.5% in Dec’2010. We expect better performance in these segments in the coming month due to mild ease out of inflationary pressures thus leading to a stronger demand. Seasonal demand in the ongoing quarter is also likely to support the growth.

Capital Goods Segment continued to post a negative growth for the second consecutive month. However the performance of the Capital Goods is not as bad as reflected by the numbers (m-o-m decline came in at 8.6%). YoY decline of 18.6% is largely due to high base effect. Though some of the important items such as ‘Ship building and repair’ and ‘Material handling equipment’ have posted negative growths of 55.5% and 44.7% resp, there are other important items like ‘Process Control instruments’ and ‘ ‘laboratory and Scientific instruments’ showing significant growth of 100.5% and 49.9% respectively.

Electricity and consumer non durables were the only segments posting higher growth at 10.5% and 6.9% respectively as compared to the corresponding month of the previous year.

As per Industry Based Classification ‘Jute and other Vegetable Textiles’ posted the highest growth at 772.6% followed by ‘leather and fur products at 27%. Industry groups ‘Metal Parts & Products’ and ‘Wood & Wood Products’ posted declines of 34.4% and 22.2% respectively.

OUTLOOK: Increased manufacturing activity as indicated by HSBC’s PMI for manufacturing (at 57.9 in Feb’11), higher export and import numbers for the month of February, strong consumer demand ahead of the festive season may augur well for the IIP numbers in the last two months of the current fiscal. However we do not expect Industrial growth for FY11 as strong as witnessed in the previous year and maintain our estimates of 7-8% for the fiscal ending March 2011. With a decent growth in the Industrial production in Jan’2011, now all eyes are on inflation numbers for the month of February. If Inflation does not ease down to the desired levels, the RBI may further raise key policy rates in the forthcoming mid-quarter policy review scheduled on March 17, 2011.

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