Feb’19 IIP Update – Output Shows Sluggishness

Index of Industrial Production (IIP) – grew by 0.1% YoY in Feb’19 compared to 1.7% in Jan’19, below consensus expectation of 2%. Manufacturing output contracted by 0.3% in Feb’19 vs. 1.3% expansion in Jan’19 primarily on account of decline in output for machinery, textiles, leather and auto as well as base effect. 
  1. Manufacturing activity is witnessing sluggishness but encouraging PMI data suggest that manufacturing activities are expected to pick-up momentum in the medium-term. 
  2. Mining output declined to 2% in Feb’19 compared to 3.9% in Jan’19, also witnessing a slowdown on account of muted demand. 
  3. Electricity generation grew by 1.2% against 0.8% in Jan’19, primarily on account of higher YoY base. 
  4. Primary goods production decreased to 1.2% against 1.4%in Jan’19. Notably, agricultural output has been declining on account of subdued pricing scenario and we expect the production to remain muted led by lower Rabi sowing. 
  5. Capital goods production witnessed a sharp decline of 8.8% against 3.2% in Jan’19 on account of a higher base. However, we expect it to turn positive, going ahead. 
  6. Infrastructure/construction goods output continued to grow albeit at a slow pace of 2.4% compared to 7.9% in Jan’19 owing to a higher base. 
  7. Consumer durable output growth declined to 1.2% vs. 1.8% in Jan’19 owing to muted demand and higher YoY base. However, we expect demand to pick-up momentum in the near-term on account of seasonal impact. 
  8. Consumer non-durables output also grew by 4.3% vs. 3.8% in Jan’19. Looking ahead, we expect strong demand growth for consumer non-durables on account of pro-consumption policies in the Interim Budget. 
We expect IIP to grow at a moderate pace in 1HFY20E on account of General Elections, tighter liquidity and demand concerns. Nonetheless, it is expected to pick-up pace from 2HFY20E onwards.

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