- 2 - India's Industrial Production growth disappointed for the second consecutive month in August 2014. Production grew by 0.4 percent YoY during August 2014, the same level witnessed in July 2014 (revised downwards from 0.5 percent YoY). This decline was driven by the poor performance of the Manufacturing sector, primarily on account of a 15.0 percent YoY decline in Consumer Durables production. Excluding the Consumer Durables segment, the IIP posted a growth of 2.9 percent YoY in August 2014. However, on the flip side, Mining grew for 10th consecutive months while Electricity registered double digit growth for four out of five months of FY2014-15 so far. In the use-based segment, bulk of the slowdown came from the Capital Goods sector, where the output fell 11.3 percent YoY.
In value terms, the Index of Industrial Production (IIP) decreased to 166.1 in August 2014 against 172.1 in July 2014, registering 3.5 percent sequential decline. During April-August of FY2014-15, Industrial growth stood at 2.8 percent YoY against 0.0 percent YoY in the corresponding period of FY2013-14.
Outlook: This slowdown in Industrial growth will definitely raise concerns regarding the sustainability of Q1 FY2014-15 GDP growth number. Although, the Reserve Bank Governor Raghuram Rajan indicated that the IIP growth has been brought down because of the shutting down of Nokias manufacturing plant at Chennai but consecutive contraction in Manufacturing, particularly in Consumer Durables sector hints at deep-rooted setback in the economy. The slowdown in Exports also had an impact too. Nevertheless, we expect the Industrial growth will witness a turnaround from the second half of FY2014-15 on account of Government clearances and other administrative measures and possible rate cut by Reserve Bank of India (considering fall in Inflation).
Exhibit 1: IIP Trend (YoY %) Source: Bloomberg
Production of Manufacturing sector which accounts 75.5 percent in IIP index, declined by 1.4 percent YoY in August 2014 against a fall of 1.0 percent YoY registered in July. The Index of Manufacturing Sector decreased to 172.9 against 180.8 in the previous month, registering monthly decline of 4.4 percent. In terms of industries, 11 out of 22 industry groups in the Manufacturing sector have shown negative growth during the month of Manufacturing Sector Industrial Production August 2014 On YoY basis, production of Manufacturing sector declined by 1.4 percent in August 2014 against a fall of 1.0 percent registered in the previous month. The Index of Industrial Production grew by 0.4 percent in August 2014 from a year earlier, after increasing by the same rate in July 2014.
- 3 - August 2014 as compared to the corresponding month of the previous year. The industry group Radio, TV and communication equipment & apparatus has shown the highest negative growth of 48.8 percent YoY, followed by 43.9 percent YoY in Office accounting & computing machinery and 17.8 percent YoY in Electricity machinery & apparatus n.e.c. on the other hand, industry group Basic metals has shown the highest positive growth of 19.1 percent YoY, followed by 14.3 percent in Other transport equipment and 10.9 percent YoY in Luggage, handbags, saddlery, harness & footwear; tanning and dressing of leather products .
Production of Mining sector grew by 2.6 percent from a year earlier in August 2014, after increasing by 1.2 percent YoY in July. However, on sequential basis, the index decreased to 116.6 against 117.5 in the previous month, registering MoM fall of 0.8 percent.
Consumer Goods sector registered a decline of 6.9 percent YoY in August 2014 compared with a fall of 7.7 percent YoY registered in July. The index for Consumer Goods Sector stood at 159.9 against 168.1 in the previous month. After growing in May 2014 for the first time in 18 month, Consumer Durable production declined for the 3rd consecutive month in August. Production of Consumer Durable sector registered 15.0 percent YoY decline during the month against a fall of 20.9 percent YoY registered in July. On the other hand production of Consumer Non-durables sector too fell by 0.9 percent YoY against a growth of 2.4 percent YoY in July.
Production of Capital Goods sector witnessed a decline of 11.3 percent YoY in August vis-- vis a decline of 3.9 percent YoY in July 2014. The Index of Capital Goods sector decreased to 217.4 against 260.8 in the previous month.
Mining Sector Consumer Goods Sector Capital Goods Sector On YoY basis, production of Consumer Durables sector declined by 15.0 percent in August 2014, after registering a fall of 20.9 percent in July 2014.
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Exhibit 3: Capital Goods Trend (YoY%) Source: Bloomberg
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Exhibit4: I I P I NDEX Particulars FY2014-15 FY2013-14 I ndex YoY(%) I ndex YoY(%) YoY (%) YoY (%) Industrial Production 166.1 0.4 172.1 0.4 2.8 0.0 Manufacturing 172.9 -1.4 180.8 -1.0 1.7 -0.1 Mining 116.6 2.6 117.5 1.2 2.5 -3.6 Basic Goods 164.9 9.6 163.4 7.4 8.6 0.2 Intermediate Goods 152.5 0.3 155.5 3.0 2.5 2.4 Consumer Durables 218.7 -15.0 219.7 -20.9 -12.9 -11.2 Consumer Non Durables 136.6 -0.9 147.6 2.4 0.9 6.8 Capital Goods 217.4 -11.3 260.8 -3.9 4.3 0.7 Source: Bloomberg Aug-14 Jul-14
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