IIP Number - No immediate trigger - HDFC Securities

Led by subdued activity in mining (-3.0% YoY) and electricity (0.7% YoY), IIP registered a mere 2.0% YoY growth. Capital goods too remained weak at 1.0% YoY. However, March IIP growth has been revised upwards by 90bps to 3.4% YoY. With no signs of a turnaround, we expect IIP growth to remain subdued in 1HFY14. Normal monsoon and pick up in exports may help in 2HFY14.

IIP growth in Apr 2013 was driven by manufacturing sector (2.8% YoY). Mining output contracted by 3.0% YoY and electricity output grew by a mere 0.7% YoY.

Within manufacturing, consumer durables output continued its poor run and de-grew by 8.3% YoY. (Fifth consecutive month of contraction). However, consumer non-durables did well to grow at 12.3% YoY. Capital goods output was weak at 1.0% YoY, (-) 800bps MoM.

Despite mining sector de-growth, basic goods output grew by 1.3% YoY. Intermediate goods sector grew by 2.4% YoY. Notably, most of the components of intermediate goods showed a broad based growth.

At a more granular level, notable decline was seen in production of cigarettes: -37.8% YoY; DAP: -44.7% YoY; and boilers: -47.3% YoY. But production of apparels grew by 96% YoY, vitamins by 137% YoY, and rubber cables by 98.3% YoY.

Core index (37.9% weight in IIP) grew by 2.3% YoY in Apr 2013, (-) 340bps YoY and (-) 80bps MoM. Higher cement (8.3% YoY) and refining (5.6% YoY) output helped the most. Natural gas output continued to fall. Coal output grew marginally (3.2% YoY).

With a normal monsoon and pick-up in exports, particularly after another round of rupee depreciation, we expect a mild pick-up in economic activity in the 2HFY14.

Source : Equity Bulls

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