Knowledge Quotient

Industrial Production moves down sharply to 11.5% in May from 16.4% in Apr .

Industrial production in May moved down sharply to 11.5% yoy, much lower than consensus estimate of around 16% after starting this fiscal with an impressive growth in Apr, primarily driven by Manufacturing. in spite of low base (May'09: 2.1%). IIP by use-based classification shows that growth was pushed down by Capital Goods. Consumer goods moderated too. April IIP revised down to 16.4% from 17.6% announced earlier.

Manufacturing softens:

Manufacturing output, with higher weightage in IIP, rose by 12.3% yoy in May vs 17.9% in April. Within manufacturing, as many as 15 out of 17 industry groups showed positive growth. 'Metal Products/Parts' (+39.8%) had the highest growth, followed by 'Others' (+27.6%), 'Jute, Textile' (+26.9%), 'Transport Equipment' (25.2%) and 'Machinery and Equipment' (+24.8% yoy) (see table in next page) indicating that construction, infrastructure and auto sectors are still driving growth.
Mining grew at 8.7% in May compared to 11.7% in April. Electricity increased at 6.4% yoy in May vs. 6.9% in April. On month over month basis, both electricity and mining grew at 1.3% and 0.9% respectively.

Within Use-based classification, Capital Goods and Consumer Durable Goods moderate:

The consumer goods grew at 8.2% yoy in May vs 11.9% yoy in April as consumer durables and consumer nondurables both moderated to 23.7% and 2.4% in May vs 32.8% and 4.5% respectively in Apr.
Basic and intermediate goods production, associated with inventories, grew at 7.9% and 10.2% respectively in May vs. 9.1% and 10.6% in Apr. On month over month basis, both went up.
Capital goods, indicating fixed capital investment, declined significantly to 34.3% yoy in May from 70% yoy in Apr. On month over month basis, it went down by 9.7%.

Bottom Line:

The IIP number points to moderating growth momentum. The sequential decline indicates supply constraint and not softening of demand as most sectors are operating at full capacity. Global outlook had changed considerably in May that might have adversely impacted external demand.
Going forward, IIP growth will move to a more sustainable level, as inventory restocking ends, RBI continues to normalize policy rate and high base comes into effect.
India's lead indicators like, port traffic, railway traffic, PMI, infrastructure sector still showing healthy but slowing growth.
June IIP number will now move to single digit on high base after 10 months of double digit growth since Aug 2009 with the exception of Sept'09.
For the full year FY11, IIP growth will be lower than 10.4% clocked in FY10.

Economy Update

IIP growth in May'10

The year over year growth of IIP

The month over month growth of IIP

Sectoral growth rates (%, y-o-y) within Manufacturing

15 out of 17 industry groups showed positive growth.
What lags? : 'Wood and Woop Products' declined by 5.7% yoy, followed by 'Beverages, Tobacco Products' (-3%).

IIP – in Charts

May IIP disappoints, much below consensus

Industrial production started the current fiscal year with bang and grew at 16.4% in Apr’10 (Apr’09: 1.2%) on the back of robust capital goods and consumer durables sector growth.
May IIP at 11.5% was much below consensus expectation of around 16%.
On month over month basis, IIP actually decreased by 0.4%.

Core sector growth in May moderated to 5.0% from 5.4% in April.
Index of six core-infrastructure industries having a combined weight of 26.7% in IIP logged 5% in May

Crude and Refined crude production improved on low base. Electricity and Cement production remained strong. Coal and steel sectors disappointed.

Non-oil imports moved down a bit; Credit growth improved significantly on 3G outflows.

Manufacturing, the big boy of IIP with 79% weight age, moves down to 12.3% in May.

Consumer Durables and Non-Durables both move down in May.

Capital goods growth decline sharply to 34.3% in May from 70% in April.

Appendix

Use - Based Classification: Top 15 Components by Weight
Component	Wt (%)
Basic Goods	35.6
Mineral index	10.5
Electricity	10.2
Cement all kinds	2.0
Nitrogenous fertilizers	1.8
Bars and rods	1.8
Carbon steel	1.1
Structural (light, medium & heavy)	1.0
High speed diesel	0.7
Caustic soda	0.5
Soda ash	0.4
Aluminium ingots	0.4
Pig iron	0.3
Phosphatic fertilizers	0.3
Sponge iron	0.2
Plates	0 2

Capital Goods	9.3
Diesel engines (IPP)	0.8
Well/off shore platforms	0.7
Industrial machinery	0.5
Complete tractors	0.5
Laboratory and scientific instruments	0.4
Protection system/switch board/switch gear etc.	0.4
Computer system and its peripherals	0.4
Process control instruments	0.3
Ship building and repair	0.3
Agricultural implements	0.3
Power & dist. transformers (IPP)	0.3
Broad gauge passenger carriage	0.3
Textile machinery	0.3
Telecommunication cables	0.3
Insulated cables/wires all kinds	0.2

Intermediate Goods	26.5
Cotton yarn (including SSI)	4.5
Filament yarn	1.8
Plywood commercial	1.7
PVC pipes & tubes	1.5
Particle board	1.0
Glazed tiles/ceramic tiles	0.9
Auto ancillary & parts	0.7
Polyester fibre	0.7
Shoe uppers	0.6
Paints, enamels & varnishes (IPP)	0.5
Viscose staple fibre	0.5
Corrugated boxes/cartons (all kinds)	0.5
Ball& roller bearings	0.5
Newsprint bleached	0.5
Bottles/bottle glass wares	0.4

Consumer Durables	5.4
Telephone instruments	0.6
Scooter and mopeds	0.6
T.V. receivers	0.5
Passenger cars	0.4
Giant tyres	0.4
Wrist watches	0.4
Motorcycles	0.4
Bicycles all kinds	0.4
Alarm time pieces	0.3
Electric fans all kinds (IPP)	0.2
Washing/laundry machines etc.	0 2
Metallic utensils excl. pressure cooker	0.2
Refrigerators (domestic)	0.1
A.C. single phase house service meters	0.1
Two wheeler tyres	0.1

Consumer Non-durables	23.3
Cotton hosiery cloth	2.5
Sugar	2.2
Wheat flour/maida	2.1
Paper & paper board (IPP)	1.4
100% Non-cotton cloth	1.2
Vitamin a	1.1
Milk powder of all kinds	1.0
Cotton cloth (excluding hosiery)	1.0
Cigarettes	0.8
Tea	0.8
Vitamin c	0.6
Ampicillin	0.6
Mustard oil/rape seed oil	0.5
Indian made foreign liquor	0.5
Writing Instruments	0.4

Total Used Based Index	100

The views expressed herein are the personal views of the Economist. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The Sponsor, The Investment Manager, The Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. None of The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material.

Statutory Details: Reliance Mutual Fund has been constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Company Limited. Investment Manager: Reliance Capital Asset Management Limited (Registered Office of Trustee & Investment Manager: “Reliance House” Nr. Mardia Plaza, Off. C.G. Road, Ahmedabad 380 006). The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus.

Mutual Fund Investments are subject to market risk, please read the Scheme Information Documents & Statement of Additional Information carefully before investing.

TOP