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IIP growth in Jul’21 in line with our expectations…

…but it was higher than Bloomberg consensus

* Similar to our expectation of 11.4% YoY, but higher than Bloomberg consensus of 10.4% YoY, IIP grew by 11.5% YoY in Jul’21 as against a decline of 10.5% YoY in Jul’20. After adjusting for base (average IIP growth for the same month in n and n-1 years), IIP grew by 0.5% YoY in Jul’21 after contracting in the preceding two months. IIP for Apr’21 has been revised down to 133.5% YoY from 134.6% YoY earlier.

* The Manufacturing sector grew by 10.5% YoY in Jul’21 v/s -11.4% YoY in Jul’20. The Mining sector grew by 19.5% YoY in Jul’21 v/s -12.7% YoY in Jul’20. Power generation grew by 11.1% YoY in Jul’21 v/s -2.5% YoY in Jul’20. Interestingly, Manufacturing activity and Power generation grew faster, but Mining activity continued to decline (albeit slowly) MoM in Jul’21.

* Among the use-based categories, production of Capital Goods, Infrastructure/Construction activity, and Consumer Goods production saw a modest MoM growth in Jul’21 compared to Jun’21. On the contrary, primary and intermediate goods production saw a faster MoM growth in Jul’21.

* Our in-house Economic Activity Index (EAI) for real GVA growth in Jul’21 remains largely unchanged at 7.5% YoY (7.7% YoY earlier) after including actual IIP numbers. Moreover, our analysis of a few indicators on a monthly basis show that the fear of an impending third COVID wave has somewhat restricted economic activity in Aug’21. Overall, we expect real GVA to come in at 7-8% YoY in 2QFY22.

* IIP grows 11.5% YoY in Jul’21…: Similar to our expectation of 11.4% YoY, but higher than Bloomberg consensus of 10.4% YoY, IIP grew by 11.5% YoY in Jul’21 as against a decline of 10.5% YoY in Jul’20 (Exhibit 1). After adjusting for base (average IIP growth for the same month in n and n-1 years), IIP grew by 0.5% YoY in Jul’21 after contracting in the preceding two months. Notably, IIP for Apr’21 has been revised down to 133.5% YoY from 134.6% YoY earlier.

* …supported by low base across the board: The Manufacturing sector grew by 10.5% YoY in Jul’21 v/s -11.4% YoY in Jul’20. The Mining sector grew by 19.5% YoY in Jul’21 v/s -12.7% YoY in Jul’20. Power generation grew by 11.1% YoY in Jul’21 v/s -2.5% YoY in Jul’20 (Exhibit 2). Interestingly, Manufacturing activity and Power generation grew faster at 8.2%/9.2% MoM in Jul’21 v/s 7.4%/4.4% MoM in Jun’21, respectively. Mining activity, however, continued to decline (albeit slowly) by 0.9% MoM in Jul’21 from -2.3% YoY a month ago (Exhibit 3).

* Use-based components indicate a mixed MoM picture in Jul’21: Production of Capital Goods grew by 13.6% MoM in Jul’21 v/s 28.1% MoM in Jun’21. Infrastructure/Construction activity grew by 4.2% MoM in Jul’21 v/s 7% MoM in Jun’21. Production of Consumer Goods grew by 9.7% MoM in Jul’21 v/s 11.9% MoM in Jun’21. On the contrary, the production of primary/intermediate goods grew faster to 5%/7.8% MoM in Jul’21 from -0.2%/2.8% MoM in Jun’21 (Exhibit 4). Expect real GVA growth of 7-8% YoY in 2QFY22: Our in-house Economic Activity Index (EAI) for real GVA growth remains largely unchanged at 7.5% YoY in Jul’21 (7.7% YoY earlier) after including actual IIP numbers. Moreover, our analysis of a few indicators on a monthly basis show that the fear of an impending third COVID wave has restricted economic activity in Aug’21. Overall, we expect real GVA to come in at 7-8% YoY in 2QFY22.

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