Quote on IIP Data by Mr. Arsh Mogre, Economist Institutional Equities, PL Capital - Prabhudas Lilladher
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Below the Quote on IIP Data by Mr. Arsh Mogre, Economist Institutional Equities, PL Capital - Prabhudas Lilladher
India’s Index of Industrial Production (IIP) expanded by 5.2% YoY in November 2024, improving from 3.5% in October 2024, marking a sharp recovery after the disappointing Q2 FY25 average of 2.6%. While the improvement in annualized growth was supported by all the three, the manufacturing sector recorded the fastest pace of expansion (5.8% YoY), driven by infrastructure emphasis and construction demand. Consumer durables surged 13.1%, reflecting robust festive spending, while capital goods' 9% growth signals a revival in private investments. 18 out of 23 manufacturing sub-sectors recorded positive growth, but key consumer-facing sectors like food products (-3.3%) and textiles (+3.8%) remain under pressure. The Nov-24 print for IIP offers moderate comfort, especially because it comes on the heels of a dismal performance in Q2 FY25 (that saw IIP clock a growth rate of 2.6% YoY). Consumer non-durables lagged at just 0.6%, the anticipated recovery in rural demand, supported by a healthy rabi sowing activity, should be supportive of consumer non-durables. At the same time, urban demand is likely to remain adversely impacted due to the lagged effects of past policy tightening. This could weigh upon consumer durables production. Secondly, rising input costs pose a significant challenge for industrial margins. WPI inflation is projected to rebound to 2.5% in FY25, reversing from -0.7% in FY24, driven by higher crude oil and commodity prices. Sectors like FMCG and building materials are already struggling to pass on these costs, as reflected in muted margin growth across key product categories, adding to the fragility of the recovery. Further, With President-elect Trump signaling aggressive tariffs on imports, India’s exporters could face indirect pressure as global supply chains realign. This adds to the challenges posed by weak global demand for industrial goods, further dampening the export-linked manufacturing outlook
On net basis, the Nov-24 IIP data is an encouraging sign, but decisive action will be critical and all eyes will be on Union Budget 2025-26.”
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