Industrial production recovers; focus on inflation numbers: DBS Group Research

Jul industrial production (IP) surpassed expectations to rise 4.2% YoY from revised Jun's 4.4% (vs 3.8% earlier). Apr-Jul average stands at 3.5%, nearly steady from the same period last year. The breakdown saw capital goods maintain its strong run (partly influenced by one-off factors), alongside a second month of double-digit rise in consumer durables while non-durables retreated. On the supply-end, higher electricity generation and mining output made up for the slower manufacturing growth.

Digging deeper, consumer goods output were weighed by slower non-durables while durables picked momentum. Higher passenger cars production helped boost this segment (contributed 0.33ppt to headline IP). In the months ahead, base effects are expected to provide support to durables demand, along with easing inflation and scope of further softening in financing costs. Capital goods meanwhile posted a sharp 10.6% rise from 2% decline the month before. This marks a quickening in pace from 2.3% (3mma, YoY) until Jun, partly boosted by a one-off jump in insulated cable/rubber sub-component, which punched above its weight (added 0.84ppt to headline IP).

Looking ahead, higher government spending-led boost to infrastructure investments, lower financing costs on the back of more rate cuts and easing inflation are expected to underpin the cyclical upturn in industrial activity. Structural tailwinds to India's recovery by way of crucial reforms are however on a slow lane, with progress on GST, land acquisition and labour reforms delayed at least until the winter parliamentary session in Nov/Dec.

Source : Equity Bulls

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