India's April 2019 IIP Analysis: Spikes to 6-month high

India's industrial output picked up pace, to a six-month high of 3.4% in Apr’19 as compare to the 4.5% in Apr’18 and a revised figure of 0.4% YoY for March 2019, mainly on account of better performance by mining and power generation segments bringing some relief to policy makers gearing up to present the budget in July. In terms of industries, 14 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of April 2019 vs April 2018.


Mining Output rose by 5.1% in Apr’19 compared to 0.8% in Mar’19, Electricity generation output growth accelerated to 6% in Apr’19 compare to 2.2% in Mar’19, Though it’s early days, this may indicate that inventory correction may be close to running its course and we expect it will rose further as government is taking initiatives on the mining and power generation sector for the growth of rural areas.


Manufacturing output surged to 2.8% in Apr’19 compare to 0.4% in Mar’19, due tocombination of tight liquidity and slowdown in government spending and global growth which is weighing on manufacturing capex. We believe overall on trend basis, growth remains subdued on a weak base.


Auto production contracted 8% for the seventh successive month. Despite registering acontraction, the situation was better for two-wheelers. Automobile sector is facing slowdown in sales amid weak demand and a liquidity crunch faced by non-bank vehicle financiers, prompting major auto makers to cut production.


Capital Goods grew at 2.5% compared to a decline of 8.4% in March 2019. This is the first growth for this component since December 2018. If the current trajectory of capital goods sustains into the next couple of months alongside cement and steel, it could point to a recovery in Q1FY20 in capitalformation, which, Q4FY19 data shows, has slumped sharply.


Consumer durables production i.e. suggestive of urban demand conditions has improved to 2.4% as against a contraction of 5.1% in Mar 19. Consumer non- durables production grew at a robust pace of 5.2% in April 19, almost 5% higher than Mar’19, largely driven by strong growth in soyabean oil and sunflower oil.


On the whole, the acceleration in IIP is welcome but picture is not very clear and encouraging due to high volatility. We think post elections, there would be higher government spending which would drive investment activity and accelerate the GDP growth in FY19 and industrial production to see a likely pick-up from Q2-FY20 contingent upon normal monsoon. Despite the best performance in the last six months and the broad-based nature of improvement in industrial production it is too early to call it a definite recovery as manufacturing, the largest part of industry, does not depict definite trend.



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