How do you see the core sector growth announced for the month of Feb-22 at 5.8%?

The government recently announced the core sector growth for Feb-22 which came in at an impressive 5.8%. However, you must take it with a pinch of salt as the corresponding yoy core sector growth was negative at -3.3% in Feb-21. This sort of magnified the impact of core sector growth in Feb-22. During the last 13 months, core sector growth has been in positive territory in 12 out of these months, despite base effect broadly neutralized.

A major cue from the core sector is always the direction of the revisions; both intermediate and the final revisions. For Nov-21, the final core sector growth was revised 10 bps higher at 3.2%. To add to the good news, the first revision for Jan-22 also raised the core sector growth by 30 bps to 4.0%. These positive revisions also bode well for the future changes to the Feb-22 core sector numbers and raise the prospects of a positive upgrade.

One way to study the trend is to look at cumulative core sector and compare with FY20 rather than FY21 to negative the COVID effect. For instance, the cumulative core sector growth for Apr-Feb 2022 was +11.0%, but this is on the back of contraction of -8.1% in first 11 months of FY21. Thus, on a pre-COVID basis, core sector is 2.01% above corresponding 2019-20 levels. We see stability here as it was at this number even as of Jan-22.

The table below rapidly captures the 8 major components of core sector growth in YOY terms, MOM terms and 2 year terms to give a complete picture.

Here are some quick inferences from the above table that you can draw.

· Feb-22 core sector growth is up 5.8% over Feb-21. In the latest month for which core sector data is available i.e. Feb-2, a total of 6 out of 8 core sectors showed positive growth. Crude oil extraction and production of fertilizers have been under pressure for some time now due to supply chain and input constraints.

· In driving the core sector it is about growth and weight, so we need weighted growth. On that parameter, refining products and steel contribute the most due to their weight followed by natural gas and cement. Robust natural gas prices have been the big story.

· One must admit that the sequential month on month numbers were disappointing. MOM growth is negative across all the 8 segments and overall MOM growth is -5.3%, largely due to the Ukraine war and the unprecedented surge in crude oil prices globally.

· However, there are some positive takeaways. Despite the base effect, 2-year growth is fairly positive and stable. On the downside, the short term momentum shows pressure and, going ahead, a lot will depend on how interest rates and inflation show up.