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IIP Update, January 2013


Index of Industrial Production 

Performance on sectoral basis 
On a yoy basis, Mining witnessed a 5.5% decline during the month as compared to flat performance in the previous month reflecting the decline in production of coal and natural gas. Growth in Electricity decelerated to 2.4% as compared to a healthy growthof 5.5% in the previous month and 14.6% in November 2011.  The Manufacturing sector, accounting for  75.5% of the overall index reported a marginal 0.3% growth during the month as compared to 9.8% in October 2012 and 6.6% in November 2011. On a positive note, growth in manufacturing remained in the positive territory for the third consecutive month on a 3MMA basis. On a cumulative basis, in the April - November 2012 period, Mining reported a 1.6% decline while the Manufacturing and Electricity sectors reported growth of 1.0% and 4.5% respectively.  

Performance in the Use-based category 
Under the Use-based classification, Capital goods continued to remain volatile, witnessing a 7.7% de-growth during the  month as compared to a 7.5% growth in October 2012 aided by an exceptionally low base. We believe that although the momentum of decline has slowed, it does not point to an improvement in the near term. Cumulatively, in the April – November 2012, the Capital goods index declined by 11.1%.  The production of Consumer goods decelerated steeply from a 13.7% growth rate in October 2012 to 1.0% growth during November 2012, reflecting the possible drawing down of inventories piled up in anticipation  of the festival season, particularly in the case of consumer durables.  


Subdued growth of core Industries 
The Index for Eight Core Industries, having a combined weight of almost 38% in the IIP, reported a subdued growth of 1.8% during the month as compared to 6.6% in October 2012 and 7.8% growth in November 2011. The deceleration in growth can be attributed to de-growth in the production of natural gas (by 15.2%), coal (by 4.4%) and cement (by 0.2%) and deceleration in growth rates of petroleum refinery products (6.6%), steel (6.0%) and electricity (2.4%).  The cumulative growth of eight core industries in the April – November 2012 period stood at 3.5%, lower than 4.8% growth in the corresponding period of  the previous year.  


Future Outlook 
We expect the government’s reform measures to boost business confidence and give an impetus to the investment cycle going forward. With overall growth in the economy showing signs of bottoming out, we expect a slight recovery in industrial production. As the recovery rests on a sustainable pick-up in investment, 
consumption and exports, we expect it to be gradual. The overall IIP print for FY2013 is likely to stabilize at a lower level in a flat to marginally positive range. As far as monetary policy stance is concerned, we believe that the Reserve Bank of India (RBI)’s stance has increasingly shifted towards supporting growth rather than 
focusing solely on inflation management  and  with  recent  moderation  in  core inflation, we expect the RBI to ease the repo rate by 50bp in 4QFY2013.



DISCLAIMER 
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. 



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