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IIP growth below our expectations in Oct’21

Expect real GDP growth of 5.7% in 3QFY22

* IIP growth in Oct’21 came in at 3.2% YoY v/s 3.3% YoY in Sep’21 and 4.5% YoY in Oct’20. The number is lower than our expectations and Bloomberg survey of 3.7% YoY. IIP growth for Sep’21 has been revised upwards from 3.1% previously.

* Manufacturing activity (IIP weightage: ~78%) grew only 2% YoY in Oct’21 as against 3% YoY in Sep’21. On the other hand, mining activity (IIP weightage: ~14.4%) grew faster at 11.4% YoY (v/s 8.6% YoY a month ago) and power generation grew 3.1% YoY compared to 0.9% YoY in Sep’21. Slower growth in textiles and basic metals and continued contraction in others such as rubber and plastic products, pharmaceuticals, chemicals, leather-related products, among others caused the overall slowdown in manufacturing activity.

* According to use-based classification, capital goods production contracted 1.1% YoY in Oct’21 as against 2.4% YoY a month ago. Even infrastructure or construction activity grew slowly in Oct’21 v/s Sep’21. Consumer goods production continued contracting at a faster pace in Oct’21.

* With Oct’21 actual IIP data, our in-house indicators for real-GVA growth remains broadly unchanged at 4% YoY. We continue to expect real GVA growth of 5.7% YoY in 3QFY22.

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