- India’s industrial activity reverted to expansionary territory with Nov-22 IIP posting an annualized growth of 7.1%YoY vis-à-vis a contraction of 4.2% in Oct-22.
- The headline print beat market expectations, with most consensus estimates expecting a tepid recovery of around 2.6%YoY.
- Sequential momentum was strong at 6.0%MoM in Nov-22 from a contraction of 3.5%MoM in Oct-22, and better than the average expansion of 0.6%MoM usually seen in the month of November over the past 5-years.
- A surprisingly strong IIP data for Nov-22 accompanied by improvements in the breadth of industrial activity and outperformance in all 3 sub-sectors helped recoup the loss of momentum seen in holiday heavy month of Oct-22.
- Festive season support, government’s aggressive capex disbursal, and improving capacity utilisation at a macro level ought to have played a supportive role.
- However, we also acknowledge escalating downside risks from external side amidst weakening of growth impulses due to tightening of global financial conditions, and heightened geopolitical uncertainty.
- In addition, lingering weakness in manufacturing exports, continuing sluggishness in the pace of private capex recovery along with expectations of a moderation in urban consumption are a matter of concern.
- Overall, we continue to maintain our GDP growth outlook at 7.0% for FY23 with some downside risks.
in India’s industrial activity sprung back into positive territory with Nov-22
IIP recording an annualized growth of 7.1% vis-à-vis a contraction of 4.2% in Oct-22.
The headline print also managed to beat market expectations, with most
consensus estimates expecting a tepid recovery of about 2.6%
A granular look:
- Sequential momentum for IIP was strong at 6.0%MoM
in Nov-22 from a contraction of 3.5%MoM in Oct-22, also defying the average contraction
of 2.0% usually seen in the month of November. This can be partly attributed to
the base factor since Oct-22 was marked by heavy festivities.
- On sectoral classification, the surprisingly
strong headline print was driven by sequential expansion in Mining (9.1% MoM) and
Manufacturing (6.5% MoM). Electricity, in contrast recorded a sequential
contraction (-1.5%MoM) though a favourable statistical base pushed annualized
growth in the sector to 12.7% YoY in Nov-22 compared to 1.2% in Oct-22.
- Within the 23 sub-sectors of manufacturing, 18
registered a sequential expansion while 5 saw a sequential contraction. The top
3 industries showing expansion in sequential activity were Pharma (+33.9% MoM),
Electrical Equipment (+26.9% MoM) and Food Products (+25.0% MoM). On the other
hand, the bottom 3 industries in terms of sequential activity were Coke and
refined petroleum (-5.1% MoM), Computer, Electronic & Optical Products
(-3.4%MoM), and Paper & Paper Products (-1.9%MoM).
- On use-based classification, Nov-22 saw a broad-based
organic sequential expansion driven by production of Consumer Non-durables (+24.2%MoM),
Capital Goods (+12.2% MoM), and Consumer Durables (+5.2% MoM). Additional
support was provided by Infra & Construction Goods, Intermediate Goods, and
Primary Goods. In annualized terms, higher momentum was primarily witnessed in
case of Capital Goods which reverted to positive territory along with Consumer
Non-Durables Goods which is at a 19-month high.
The larger than anticipated expansion
in Nov-22 IIP reflects an improvement in the breadth of industrial activity
which has displayed a general weakness in the first part of the fiscal year. Accompanying
the growth in industrial activity, the healthy rabi sowing, moderating retail
inflation, strength in services exports along with central government’s
persistent focus on pushing through capex clearly seems to support the growth
outlook over the remainder of FY23. The cumulative supportive undercurrent was
visible in some of the other proxy indicators like PMI, Core output, E-Way
Bills and Automobile Production which helped recoup the loss of momentum seen
in holiday heavy month of Oct-22.
Having said so, we acknowledge
escalating downside risks from external side amidst weakening of growth
impulses due to tightening of global financial conditions, and still heightened
geopolitical uncertainty. In its latest update to the Global Economic Prospects
report, the World Bank slashed its growth forecast for 2023 and 2024 to 1.7%
and 2.7% - this marks a sharp loss of momentum against the growth estimates of
3.0% in 2023 and 2024 provided in June 2022.
In addition, lingering
weakness in manufacturing exports and sluggishness in the pace of private capex
recovery along are a matter of concern. Although urban consumption is still
performing relatively better, rapid pace of monetary tightening undertaken by
the RBI since Apr-22 may moderate growth impulses as lending rates start
Nevertheless, we believe that
the strength of domestic demand will continue to drive our GDP growth forecast
of 7.0% for FY23 although with some downside risks.
Table 1: IIP growth at a glance
1: Growth in consumer non-durables in Nov-22 signals moderate rural recovery