InvestorQ : What is your take on the latest IIP numbers announced by the government on 12 March?
vaishnavi mhatre made post

What is your take on the latest IIP numbers announced by the government on 12 March?

vidhya Laxmi answered.
1 year ago

Here are some of the major highlights of the Index of Industrial Production or IIP numbers announced by the MOSPI on 12 March 2021.

· It was a disappointing month of Jan-21 as IIP growth fell back into negative territory with manufacturing taking a major hit. In fact, industrial production slipped back into contractionary mode as capital goods and consumer goods struggled.

· Now for the numbers. The IIP for Jan-21 stood at -1.6% compared to positive IIP growth of +1.56% for the previous month of Dec-20. However, the good news is that the Dec-20 IIP and the Oct-20 IIP have seen upgraders of 30-50 bps in revised estimates.

· Out of the 10 months in the current financial year till the end of Jan-21, IIP was positive only in 3 months and negative in 7 months in all. The cumulative IIP for the first 10 months of the fiscal stands at -12.2%, slightly better than the December cumulative.

· One reason for this negative turn in IIP growth could be the tapering of the much talked about festival season demand. Also, the rise in COVID-19 cases across India and the re-imposition of lockdown in several cities pose risks to growth outlook.

· Most experts have averred that the IIP performance in January was worse than expected. While some deterioration in the IIP's performance in January 2021 was expected, a sharp contraction had not been bargained for.

· Manufacturing sector, which has a 77% weight in the IIP actually saw activity contract by 2% in Jan-21 compared to 2.1% growth in the previous month. Manufacturing pressure was visible in capital goods and consumer goods in terms of user industry analysis.

· The capital goods sector contracted 9.6% notwithstanding a very low base in January last year. The primary mining sector posted 3.7% contraction in Jan-21 but electricity grew at a better rate of 5.5% giving a lead indicator of pick up in factory operations.

· Out of the 24 sub-sectors covered under the IIP basket, only 6 sectors posted positive growth in Jan-21 with the rest showing negative growth. On a cumulative 10-month basis, all the 24 sectors are showing negative growth on a yoy basis.

· Major growth stories were chemicals at 3.1%, rubber and plastic products at 6.3% and wood products at 6.9%. Contracting sectors included apparel, pharmaceuticals and furniture where the contraction was in deep double digits.

· The MPC is likely to treat weak growth and inflationary pressure in non-food articles as a signal to maintain the accommodative stance of the monetary policy. Of course, a lot will predicate on the actions of the FOMC next week.