India IIP May 2019 Analysis - Declines 3.1% while manufacturing output grows by 2.5%

India’s industrial output – as measured by Index of Industrial Production (IIP) – grew by 3.1% YoY in May’19 from 4.3% in Apr’19, below street estimates of 2.9% growth. Manufacturing output grew by 2.5% YoY in May’19 vs. 2.8% YoY in Apr’19 led by rise in output of agri products, wooden products, leather products, apparels, pharmaceuticals and electronics. Notably, export-oriented sectors witnessed pick-up.

  1. Mining output declined to 3.2% YoY in May’19 against 5.1% YoY in Apr’19 on account of slowdown in demand.
  2. Electricity generation grew by 7.4% YoY in May’19 against 6% YoY in Apr’19, primarily on account of lower YoY base.
  3. Primary goods production decreased to 2.5% YoY in May’19 from 5.2% YoY in Apr’19 owing to higher YoY base.
  4. Capital goods production sharply declined to 0.8% YoY in May’19 from 2.5% MoM owing to higher YoY base as well as slowdown in capacity addition by the major industries.
  5. Infrastructure/construction goods output grew by 5.5% YoY in May’19 compared to 1.7% in Apr’19 owing to higher demand.
  6. Consumer durables output slipped to -0.1% vs. 2.4% in Apr’19 on account of lower demand. We expect demand to pick-up momentum in the near-term owing to seasonality.
  7. Consumer non-durables output grew by 7.7% YoY in May’19 from 5.2% in Apr’19. We expect the momentum to continue, going ahead with recovery in rural demand.

We expect IIP to grow at a moderately around ~3.5% in 1HFY20E on account of the impact of General Elections, tighter liquidity and subdued demand. Nonetheless, we expect manufacturing to pick-up pace from 2HFY20E onwards only as lower cost of funding seeps in the economy.


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