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ECONOMICS UPDATE

13 OCT 2016

IIP
Scope for improvement
The Aug-16 IIP print confirms the presence of
reasonable slack in the economy. However the
quantum of the same is grossly overstated. The
decline in headline IIP was mainly on account of the
anomalous head of rubber cables (reduction of 3.1
percentage points from headline print) within
capital goods. The same is expected to be rectified
with the introduction of a new series before the
end of CY17. However, even if the spurious effects
of the same are filtered through, the industrial
output was tepid. Electricity, mining and consumer
non durables slowed down substantially. However,
affirmative policy actions (MIP) have started
impacting industrial production (steel +17%,
cement +3.1%).Going ahead, the allocations for
roads, railways and the power sector in the Union
Budget will boost industrial production. The same
(Govt spends) will be under duress if the OPEC
freeze goes through. With the conclusion of normal
monsoons the slack in the capacity utilisation will
abate aided by 7th CPC and incipient festive
demand. On the other hand, recovery in exports is
challenging owing to the subdued global macro
environment.

IIP for Aug-16 declined 0.7% vs. +6.3% YoY and Romit Fernandes
romit.fernandes@hdfcsec.com
+91-99301-24556

2.5% sequentially; marginally below expectations


The fall was triggered by mining, contraction of
5.6% vs +4.5% YoY and +0.9% sequentially, led
by the collapse in coal production induced by
monsoons.

Manufacturing contracted by 0.3% vs +6.6% YoY

and -3.5% sequentially led by capital goods,


contraction of 22.2% vs +21.3% YoY and -29.5 %
sequentially, this was the tenth consecutive
month of decline.

This was mainly on account of electrical

machinery (-49.4% vs +40.3% YoY and -59.2%


sequentially) led by rubber cables, -86.2% YoY
and a contribution of -3.1 percentage points to
the headline IIP print.

The production of rubber cables is not a


barometer of the electrical machinery segment.
However, it remains as a vestige of the outdated
IIP series (2004-05).

Ex cables, Aug-16 IIP registered a growth of

2.3% which may not be spectacular but isnt


abysmal either. On YTD basis IIP grew by 2.9%
vs. a contraction of 0.3%. This is still below the
organic excise growth of `10% (excluding the
hike in petro).Ex-cables, capital goods expanded
by 14.6% vs. -22.2% in Aug-16.On YTD basis,
capital goods grew by 17.3% vs -21.46%.

Consumer goods registered growth of 1.1% vs.

6% YoY and 1.6% sequentially, led by consumer


durables (2.3% vs 17% YoY and 5.9%
sequentially).Consumer non-durables were flat
vs.-1.4% YoY and -0.9% sequentially led by
apparels

Electricity cooled down to 0.1% vs. 5.6% YoY


and 1.6% sequentially mainly due to monsoons.

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ECONOMICS UPDATE: IIP

IIP Snapshot
5M
FY16
1.3%
4.5%
3.2%
4.1%
4.6%
7.2%

3.2%

3.0%

4.5%

Coal

4.4

-9.2%

0.5%

5.1%

2.6%

Crude Oil

5.2

-3.9%

5.6%

-1.8%

-3.1%

1.7

-5.7%

3.7%

3.3%

-4.2%

5.9

3.5%

5.8%

13.7%

7.6%

1.9%

Natural Gas
Refinery
Products
Fertilizers

1.3

2.8%

14.3%

-4.0%

6.4%

2.9%

Steel

6.7

17.0%

-3.3%

-0.5%

5.5%

Cement

2.4

3.1%

5.4%

1.4%

4.4%

10.3

0.1%

5.6%

1.6%

5.7%

7.5%
1.9%

IIP (Ex- Cables)

10.0
0.0
-10.0
-12.5

-16.3

-25.3

-21.46

Jun-16

YTD Growth

-29.5

-40.0

Source: CSO

-22.2

Aug-16

-30.0

Jul-16

-20.0

%YoY

%YoY

%YoY (ex cables)


4.7

3.5
2.4
1.3

2.0

1.8

2.3

-0.7

-1.3

2.9

-0.3

-2.5

YTD Growth

17.3

6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0

Aug-16

%YoY (ex cables)


21.5
16.6
14.6

Jul-16

13.9

Electricity
Source: CSO

Jun-16

19.2

%YoY

5M
FY16

3.2%

May-16

20.0

%YoY

5M
FY17

37.9

Apr-16

30.0

Weight
Aug-16 Aug-15
(%)
Core

Cap goods (Ex- Cables)

May-16

Ex cables, Aug-16 IIP registered


a growth of 2.3% which may
not be spectacular but isnt
abysmal either. On YTD basis
IIP grew by 2.9% vs a
contraction of 0.3%.Capital
goods expanded by 14.6% vs 22.2% in Aug-16.On YTD basis,
capital goods grew by 17.3% vs
-21.46%.Hence the deviation
from excise collections

Apr-16

Electricity, mining and


consumer non durables slowed
down substantially. However,
affirmative policy actions (MIP)
have started impacting
industrial production (steel
+17%, cement +3.1%)

Core Sector Snapshot

Weight
5M
Aug-16 Aug-15
(%)
FY17
Mining
14.2 -5.6%
4.5%
0.6%
Manufacturing
75.5 -0.3%
6.6% -1.2%
Electricity
10.3
0.1%
5.6%
5.7%
IIP
100.0 -0.7%
6.3% -0.3%
Basic goods
45.7
3.2%
3.7%
3.9%
Capital Goods
8.8 -22.2% 21.3% -21.5%
Intermediate
15.7
3.6%
2.8%
3.9%
goods
Consumer
29.8
1.1%
6.0%
0.9%
goods
Durables
8.5
2.3% 17.0%
6.3%
Non-durables
21.3
0.1%
-0.9% -2.8%
Source: CSO

Source: CSO

Page | 2

ECONOMICS UPDATE: IIP

Breakup of Manufacturing
Consumer non-durables was
flat vs.-1.4% YoY and -0.9%
sequentially led by apparels

Based on Use

Cons non-dur

Intermediate

Decline in capital goods mainly


on account of electrical
machinery (-49.4% vs +40.3%
YoY and -59.2% sequentially)
led by rubber cables, -86.2%
YoY

Basic

Capital

Consumer Dur
Manufacturing
IIP
Source : CSO

Items
Food Products, Beverages
Tobacco
Textiles
Wearing Apparel; Dressing And
Dyeing Of Fur
Luggage, Handbags, Saddlery,
Harness & Footwear; Tanning And
Dressing Of Leather Products
Wood And Products Of Wood Cork
Except Furniture; Articles Of Straw &
Plating Materials
Paper And Paper Products
Publishing, Printing & Reproduction
Of Recorded Media
Coke, Refined Petroleum, Nuclear
Fuel
Chemicals And Chemical Products
Rubber, Plastic Products
Other Non-metallic Minerals
Basic Metals
Fabricated Metal Products, Except
Machinery & Equipment
Machinery And Equipment
Office, Accounting & Computing
Machinery
Electrical Machinery & Apparatus
Radio, TV And Communication
Equipment
Medical, Precision & Optical
Instruments Watches And Clocks
Motor Vehicles, Trailers And SemiTrailers
Other Transport Equipment
Furniture; Manufacturing

Weight

Aug-16

Jul-16

Aug-15

5MFY17

5MFY16

7%
2%
6%

0.7%
8.1%
0.4%

-0.8%
22.3%
2.3%

-8.9%
-9.4%
3.9%

4.2%
2.6%
8.3%

-7.0%
-7.1%
2.0%

3%

-6.6%

-16.2%

19.3%

2.7%

18.3%

1%

-1.8%

-10.1%

7.8%

-50.9%

4.4%

1%

2.2%

-7.9%

3.3%

13.2%

10.0%

1%

-4.2%

-0.8%

-1.3%

-0.8%

1.9%

1%

0.7%

-0.9%

-9.1%

5.4%

-6.7%

7%

3.3%

12.3%

10.2%

8.4%

7.2%

10%
2%
4%
11%

5.0%
2.7%
2.2%
12.4%

5.4%
3.6%
-0.2%
2.0%

4.3%
0.7%
2.2%
-2.6%

-5.8%
0.6%
-1.2%
5.7%

3.6%
0.8%
-1.8%
6.5%

3%

1.8%

-3.4%

9.8%

-0.3%

1.8%

4%

6.0%

8.8%

3.6%

8.9%

4.0%

0.3%

-5.2%

-9.9%

0.5%

5.5%

-12.0%

2%

-49.4%

-59.2%

40.3%

-51.3%

11.8%

1%

15.2%

10.9%

-9.1%

12.6%

-14.5%

1%

-6.4%

-16.8%

-2.9%

0.7%

-5.6%

4%

3.6%

3.6%

11.3%

5.9%

7.7%

2%
3%
75.5%
100%

14.6%
-22.4%
-0.3%
-0.7%

1.5%
-2.5%
-3.4%
-2.4%

1.7%
90.8%
6.6%
6.3%

6.7%
-0.2%
-1.4%
-0.2%

1.5%
45.4%
4.5%
4.1%

Page | 3

Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16

The fall was triggered by


mining

Decline led by capital goods

Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16

ECONOMICS UPDATE: IIP

Segment-wise Contribution To IIP


Mining

Basic goods
Capital goods

Manufacturing
Electricity

Intermediate goods

IIP(General)

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%

Source : CSO

Contribution TO IIP (Based On Use)


Consumer goods
IIP(General)

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%

Source: CSO

Page | 4

Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16

IIP for Aug-16 declined 0.7% vs.


+6.3% YoY and -2.5%
sequentially; marginally below
expectations

Manufacturing contracted by
0.3% vs +6.6% YoY and -3.5%
sequentially led by capital
goods, contraction of 22.2% vs
+21.3% YoY and -29.5 %
sequentially
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%

Jan-12
1.1%
Feb-12
4.1%
Mar-12 -3.6%
Apr-12
-1.8%
2.6%
May-12
Jun-12 -3.2%
Jul-12
0.0%
2.4%
Aug-12
Sep-12
-1.6%
Oct-12
-0.8%
Nov-12
9.9%
Dec-12
-0.8%
2.7%
Jan-13
Feb-13
2.1%
Mar-13
4.3%
Apr-13
-3.2%
1.8%
May-13
Jun-13
-1.7%
3.0%
Jul-13
Aug-13
-0.2%
Sep-13
1.4%
Oct-13
-1.3%
-2.6%
Nov-13
Dec-13
-1.1%
Jan-14
0.3%
Feb-14 -3.9%
Mar-14
3.0%
-1.3%
Apr-14
5.9%
May-14
Jun-14
-0.3%
2.9%
Jul-14
Aug-14
-1.1%
Sep-14
2.7%
Oct-14
Nov-14 -5.6%
4.7%
4.1%
Dec-14
Jan-15
3.4%
Feb-15
5.1%
Mar-15
2.7%
Apr-15
3.9%
May-15
2.1%
Jun-15
5.2%
Jul-15
4.8%
Aug-15
6.6%
Sep-15
2.7%
Oct-15 -4.6%
Nov-15
10.6%
Dec-15
-1.9%
Jan-16
Feb-16
0.6%
-2.9%
Mar-16
-1.0%
Apr-16
0.7%
May-16
-3.6%
Jun-16
0.7%
Jul-16 -3.5%
Aug-16
-0.3%

ECONOMICS UPDATE: IIP

Monthly Trend In IIP


12.0%
IIP(General)
IIP(3MMA)
General (Index) RHS
250.0

10.0%
8.0%
200.0

6.0%

4.0%

150.0

2.0%

0.0%

100.0

-2.0%

-4.0%

50.0

-6.0%
0.0

Source : CSO

Manufacturing

Manufacturing

Source : CSO

Page | 5

Mining

Electricity cooled down to 0.1%


vs. 5.6% YoY and 1.6%
sequentially mainly due to
monsoons
4.0%

2.0%

0.0%

-2.0%

-6.0%

-4.0%

-8.0%

-10.0%

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

Jan-12
-2.1%
Feb-12
2.3%
-1.1%
Mar-12
Apr-12
-2.8%
-0.7%
May-12
Jun-12
-1.1%
Jul-12
-0.3%
-3.5%
Aug-12
Sep-12
2.2%
Oct-12
-5.5%
Nov-12
-0.2%
Dec-12
-3.1%
-1.8%
Jan-13 -7.7%
Feb-13
Mar-13
-2.1%
Apr-13
-5.9%
-3.4%
May-13
Jun-13
-4.6%
-3.0%
Jul-13
Aug-13
-0.9%
Sep-13
3.6%
Oct-13
-2.9%
1.6%
Nov-13
Dec-13
2.6%
Jan-14
2.7%
Feb-14
2.3%
Mar-14
1.7%
0.5%
Apr-14
2.5%
May-14
Jun-14
0.1%
4.8%
Jul-14
1.2%
Aug-14
Sep-14
0.1%
4.5%
Oct-14
Nov-14
-1.7%
4.0%
Dec-14
Jan-15
-1.8%
Feb-15
1.6%
1.2%
Mar-15
-0.6%
Apr-15
May-15
2.1%
Jun-15
-0.4%
Jul-15
1.3%
Aug-15
4.5%
3.5%
Sep-15
Oct-15
5.3%
Nov-15
1.7%
Dec-15
2.8%
Jan-16
1.5%
Feb-16
5.0%
Mar-16
0.3% 0.7%
Apr-16
May-16
1.7%
Jun-16
Jul-16
5.3%
Aug-16
0.9%
-5.6%

6.0%

0.1%

Mining, contraction of 5.6% vs


+4.5% YoY and +0.9%
sequentially, led by the
collapse in coal production
induced by monsoons.

Jan-12
3.2%
8.0%
Feb-12
2.7%
Mar-12
4.6%
Apr-12
May-12
5.9%
8.8%
Jun-12
2.8%
Jul-12
Aug-12
1.9%
3.9%
Sep-12
Oct-12
5.5%
2.4%
Nov-12
Dec-12
5.2%
Jan-13
6.4%
Feb-13
3.5%
Mar-13 -3.2%
Apr-13
4.2%
6.2%
May-13
Jun-13
7.2%
Jul-13
0.0%
5.2%
Aug-13
12.9%
Sep-13
Oct-13
1.3%
6.3%
Nov-13
Dec-13
7.5%
6.5%
Jan-14
11.5%
Feb-14
Mar-14
5.4%
Apr-14
11.9%
May-14
6.7%
15.7%
Jun-14
11.7%
Jul-14
Aug-14
12.9%
Sep-14
3.9%
13.7%
Oct-14
Nov-14
4.8%
10.0%
Dec-14
Jan-15
3.3%
Feb-15
5.9%
Mar-15
2.0%
Apr-15
6.0%
May-15 -0.5%
Jun-15
3.5%
1.2%
Jul-15
Aug-15
Sep-15
5.6%
11.4%
Oct-15
Nov-15 0.7%
9.0%
Dec-15
3.2%
Jan-16
9.6%
Feb-16
6.6%
Mar-16
11.8%
Apr-16
4.7%
14.6%
May-16
Jun-16
Jul-16
8.3%
1.6%
Aug-16

ECONOMICS UPDATE: IIP

Mining

Source : CSO

Electricity
Electricity

Source : CSO

Page | 6

ECONOMICS UPDATE: IIP

IIP Trends Based On Use


Basic goods

Capital goods

Intermediate goods

Consumer goods

20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%

Aug-16

Jun-16

Apr-16

Feb-16

Dec-15

Oct-15

Aug-15

Jun-15

Apr-15

Feb-15

Dec-14

Oct-14

Aug-14

Jun-14

Apr-14

Feb-14

Dec-13

Oct-13

Aug-13

Jun-13

Apr-13

Feb-13

Dec-12

Oct-12

-40.0%

Aug-12

Slump in capital goods was


mainly due to the statistical
distortion of rubber cables. This
was the tenth consecutive
month of decline.

IIP(General)
30.0%

Jun-12

Consumer goods registered


growth of 1.1% vs. 6% YoY and
1.6% sequentially, led by
consumer durables (2.3% vs
17% YoY and 5.9%
sequentially).

Source : CSO

Page | 7

ECONOMICS UPDATE: IIP

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or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any
other assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

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Institutional Equities
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