August 2013 Industrial output disappoints - Angel Broking

As per Quick Estimates on the Index of Industrial Production (IIP), industrial output for August 2013 reported marginal growth of 0.6% as compared to 2.8% in the previous month and 2.0% in August 2012. The IIP number disappointed on the back of market expectations of growth of 2.1% during the month based on healthy performance of the core sector output (3.7% growth) and exports (13.0% growth) during the month. The index has surprised for the second consecutive month. However, in July as against consensus estimate of 0.8% decline, the IIP positively came in at 2.6% (Now revised higher to 2.8%). Even the slight growth reported during August 2013 is supported by strong 7.2% growth in electricity sector as production in both the mining and manufacturing sectors contraction. Excluding electricity production the index reported a flat performance. In spite of a low base, on a cumulative basis during April - August of FY2014, the IIP reported growth of 0.1% as compared to 0.2% in the corresponding period of the previous year. IIP data for July 2013 has been revised upwards by 20bp mainly owing to better manufacturing growth of 3.2% as compared to 3.0% reported earlier.

Performance on Sector-wise classification

In terms of sector-wise classification, mining production reported a 0.2% decline as compared contraction of 2.5% in July 2013 and 0.3% in August 2012. The trend of production decline sector continued for the eleventh straight month owing mainly to de-growth in crude and natural gas production. After posting growth of 3.2% in July 2013, production in the Manufacturing sector declined by 0.1% in August 2013. Electricity production continued to report healthy performance for the second straight month. It witnessed growth of 7.2% as compared to 5.2% in the previous month and 1.9% in August 2012.

Performance in the Use-based category

On a positive note, on a 3MMA basis the production in the basic, intermediate and capital goods has modest gained pace at 0.5%, 2.7% and 2.5% respectively indicating that the overall industrial production is likely to moderately improve going ahead.

The trends in Consumer goods production remained intact for the fourth consecutive month. On account of the steep 7.6% decline in consumer durables, the overall consumer goods index contracted by 0.8%. It continued to be supported from witnessing a steeper decline due to the 5.0% growth in consumer non-durable goods production. Consumer goods production is likely to improve on account of festival season demand going ahead.

Policy outlook

The IIP is likely to be boost in the next two months owing to production being ramped up and inventory building on account of festival demand going ahead. Due to this seasonal effect, the IIP posted huge 8.4% growth in October 2012 (even as declined by 0.7% in September 2012) as compared to the overall 1.1% growth in FY2013. Despite the bleak production data, we believe that the tone of monetary policy due on October 29, 2013 is likely to be determined by the upcoming inflation prints on WPI and CPI inflation.

Source : Equity Bulls

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