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As Industrial Output disappoints... Growth Concerns Back To The Fore

Monday, July 13, 2015
By Dominic Rebello

IIP numbers “disappointed for the May’15 by coming in at 2.7%. In fact, after striping out the base effect, the IIP growth was only at 1.8%, indicating the incremental impact at even less than 1%. Capital goods growth decelerated to 1.8% in May ‘15 from 6.8% in Apr’15. the disturbing sign is that the figures for Apr’15 for IIP has been revised downwards to 3.4% from 4.1% earlier. Going forward, IIP numbers for June may continue to be even weaker as the Yearly SBI Composite Index for June 2015 has witnessed a decline” says Dr. Soumya Kanti Ghosh, Chief Economic Advisor, Economic Research Department, State Bank of India.

Commenting on the figures in the SBI Ecowrap, he said “The declining momentum in credit growth is likely to have started impacting and this is leading to decreasing momentum in IIP growth. ASCB Bank Credit growth on a year on year basis has continued to decline and reached 9.8% (26 Jun’15), compared to last year growth of 12.8%.”

He believes the “Street consensus does not expect companies to report uptick in revenues in Q1FY2016. However, some moderate growth in bottom-line can be on expected lines. The recent softening of commodity prices and lower crude prices may allow some legroom for government to allocate savings in subsidy to kick-start stalled projects that can catalyse some growth engines. While BHEL may report flat revenue growth, ex-BHEL we may see 10% growth in top-line, in Q1FY16”.

Says CARE Rating in a just released report. Industrial output “recorded a 2.7% growth for the month of May ’15 as against our own forecast of 1.7%. Given the high growth of 5.6% in May ’14, the growth rate of 2.7% for May ’15 comes on the back of a relatively higher base effect. It may however, still be premature to say that an industrial recovery is underway. Growth in industrial output has slowed down from the 3.4% growth (revised from 4.1%) recorded in the month of April ’15”

Juxtaposed with the industrial output growth in Apr ’15, Care believes there was broadly a slowdown in the output across industries with only ‘wearing apparel, dressing and dyeing fur’, ‘coke, refined petroleum & nuclear fuels’, ‘basic metals’ and ‘furniture manufacturing’ recording noteworthy growth in May ‘15

While growth in the ‘Mining & Manufacturing’ segment came in higher than year ago levels (2.8% in May ’15 and 2.5% in May ’14), the same was seen to fall significantly in the ‘Manufacturing’ sector (2.2% in May ’15 and 5.95 in May ’14). ‘Electricity’ underwent a slight slowdown in output growth to 6% in May ’15 from 6.7% in the corresponding month of the previous year.  The cumulative growth during the period Apr’15- May ‘15 was registered at 3% as against 4.6% over the corresponding period in FY15.

Debopam Chaudhuri, Chief Economist, ZyFin Research is of the opinion that “IIP growth remains sticky at an average level of around 3%. Since January 2015, there has been no clear uptrend visible within the data, suggesting India is still struggling to break itself from the shackles of the previous slowdown. While there has been positive signs helping strengthen domestic sentiment and international perceptions, the ground reality still remains blur. In May only 54% of the industries tracked registered growth compared to 73% in the previous month. ZyFin’s Business Cycle Indicator had cautioned about a downtrend in IIP starting May 2015.”

However, Dhananjay Sinha, Head of Research, Economist & Strategist, Emkay Global Financial Services feels that  “growth for May'15 slowed down to 2.7% from 3.4% in previous month due to unexpected deceleration in capital goods.  Some of the components in Capital goods sector have been volatile in nature. Consumption oriented sectors, in line with our  expectations continued to show weakness. Weakness in consumption is indicative of weak rural demand and low government  revenue expenditure.”

So what does the future hold?  Going ahead, says Care ratings “we expect industrial activity to continue its pick-up supported by an improvement in consumer and capital demand in the second half of the year, with the monsoon period providing a seasonal low patch for the construction and capital goods sectors”.

Cumulative Picture
(April –May FY16 over April – Nov FY15)

Growth in IIP (%)
On the cumulative basis, the performance across the various sectors is given below:

  • Cumulative growth of the ‘mining & quarrying’ sector registered a growth of 1.5% during April –May ’15 as against a growth of 2.1% recorded during the corresponding period of the previous year.
  • Manufacturing segment also reported slower growth at 3.2% in the April –May’15 period compared with 4.5% growth in FY15 during the same period.
  • Out of the 22 industries 13 industries recorded a positive cumulative growth.
  • The electrical machinery & apparatus. n.e.c, ‘machinery and equipment’, ‘chemical and chemical products’, ‘rubber and plastics products’ recorded relatively higher growth in industrial output
  • Remaining 8 industries were the negative performers. The ‘office, accounting & computing machinery’ and ‘ Radio, TV and communications equipment, & apparatus’ were the worst performers with sharp contraction of 27.5% and 29% respectively.
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