Mar'13 IIP at 2.5%YoY - In line but doesn't signal recovery - Religare

March IIP was largely in line with estimates at 2.5% (RCML: 3.0%, cons.: 2.4%), led by a positive base in Manufacturing and a pick-up in the Electricity sector, even as Mining remained weak. Historical revisions continue with Dec/Feb figures revised down, albeit marginally, from -0.5%/0.6% to -0.6%/0.5%. IIP growth for FY13 was weak at 1.0% vs. 3.1% in FY12, indicating a far weaker growth outlook. This together with improving trade figures and moderating inflation bodes well for monetary easing even as the RBI stays hawkish. We expect a further 75bps rate cut this fiscal.

- Mfg./Electricity lead IIP growth in March: The Mfg. sector remained resilient (wt. 75.5%), up 3.2% in March, supported by a low base (-3.6% in Mar'12). Electricity (wt. 10.3%) also picked up sharply from -3.2% in Feb'12 to 3.5%, beating our 2.9% estimate. Mining (wt. 14.2%), however, remained weak at -2.9% vs. 3.1% estimated.

Under use-based classification, Basic goods growth recovered to 2.6% (from -1.8% in Feb'13) while Capital goods (investment proxy) remained strong at 6.9%, but is still down 6.3% for FY13. Consumer Durables fell further by 4.5%, but Consumer Non-durables growth recovered to 6.5%, resulting in overall Consumer sector growth of 1.6%. While overall Mfg. growth picked up in March, the improvement is not broad-based, with 10 of 22 industry groups showing positive growth vs. 13 in Feb'13.

- Dec'12/Feb'13 IIP revised down: Dec'12 IIP has been revised to -0.6% from -0.5% previously, led by a downward revision in the Mfg. sector from -0.7% to -0.8%, while Mining was marginally revised upwards. The Feb'13 headline figure has also been revised down to 0.5% from 0.6%, with Mfg. sector growth down to 1.9%.

- Maintain 75bps cut through the fiscal: While IIP growth signals a marginal recovery, this is largely on account of a favorable base and unlikely to sustain. As such, we maintain our call of an extended macro recovery for India. Expectations of further moderation in inflation along with better trade deficit figures (we est. US$12.7bn for March) also raise hopes of further easing. Overall, we see a further 75bps cut through the fiscal.

Source : Equity Bulls

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