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Industrial Output Declines in Jun’19; Manufacturing Output Halves
* India’s industrial output – as measured by Index of Industrial Production (IIP) – grew by 2% in Jun’19 as against revised estimate of 4.6% YoY (prior 3.1%) in May’19, below our expectation of 2.5% and below consensus expectation of 1.4%.
* Manufacturing output grew by 1.2% in Jun’19 as against 4.5% in May’19 primarily on account of decline in output of major industries such as textiles, leather, fabricated metals, auto, furniture, and electrical equipment and petroleum products. We are seeing pick-up in the sectors, which are export-oriented i.e. pharmaceuticals, food products and wearing apparels despite visible slowdown. We expect manufacturing output to pick-up pace on account of recovery in demand post 1HFY20E on better liquidity management and clarity on global growth concerns.
* Mining output grew by 2.4% in Jun’19 as against 3.2% in May’19 on account of higher YoY base. Electricity generation grew by 8.2% in Jun’19 vs. 7.4% in May’19. Cumulative electricity generation has been strong despite of industrial slowdown.
* Primary goods production grew marginally by 0.5% YoY in Jun’19 as against 2.2% in May’19 on account of higher YoY base.
* Capital goods production continued to witness downward trend, showing declined by 6.5% YoY as against -1.4% in May’19 on account of a higher base as well as slowdown in capacity addition by major industries. We expect recovery to continue post 1HFY20 when the economy is expected to pick-up pace.
* Infrastructure/construction goods output remained flat at 1.8% YoY on account of slowdown in construction activity.
* Consumer durable output grew by 5.5% YoY in Jun’19 vs. 0.3% in May’19 on account of lower demand. We expect demand to pick-up momentum in the ensuing festive season.
* Consumer non-durables output grew by 7.8% in Jun’19 as compared to 8.1% in May’19. We expect the momentum to continue going ahead with recovery in rural demand.
* We expect IIP to grow at a moderate pace at around 3.2%-3.8% in 1HFY20E on account of General Elections, tighter liquidity and demand concerns. Nonetheless, we expect manufacturing to pick-up pace from 2HFY20E onwards.
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