Impact: Positive (Steel, Overall Industry)

Brief: Core sector has expanded by 3.5% in November, 2018, which was 6.9% a year earlier. In YTD terms, the segment has been growing at 5.1% in FY19 as against 3.9% in FY18. When talking about the key factors influencing the November number, the performance of steel industry becomes important. The industry rebounded with 6% during this month despite a hostile base (14%). The industry was growing at nearly 3.2% over the past 11 months. While considering the overall component, the core sector has been witnessing strong demand not only from domestic sources but the external market as well. We believe that a positive consumer sentiment is here to stay and will further improve in the coming months.

Core sector has expanded by 3.5% in November, 2018, which was 6.9% a year earlier. In YTD terms, the segment has been growing at 5.1% in FY19 as against 3.9% in FY18. The PMI index also shows that performance of manufacturing sector remains robust in recent months. The industries, which are leading core sector growth in the November month are steel, cement, electricity, and coal. However, healthy performance of these industries has been offset by the contraction in fertilizer and crude oil production. As a result, pace in expansion of the entire segment has dropped to an almost 16-month low.

When talking about the key factors influencing the November number, the performance of steel industry becomes important. The industry rebounded with 6% during this month despite a hostile base (14%). The industry was growing at nearly 3.2% over the past 11 months. Domestic production in steel industry also rebounded due to strong demand. Iron ore price in the global market has improved with a 19% growth in October, 2018; this can indeed be considered as a green shoot, given a 3-month long contraction. The scenario entails a positive sentiment in both supply and demand sides. Therefore, we expect this growth rate to sustain in the medium term as the industry witnesses strong demand.

While considering the overall component, the core sector has been witnessing strong demand not only from domestic sources but the external market as well. We believe that a positive consumer sentiment is here to stay and will further improve in the coming months. The factors that will in turn contribute to the positive consumer sentiment are lower petroleum prices and RBI’s initiatives for facilitating sufficient liquidity in the system. The petroleum price in the retail market has dropped to an 18-month low and this will increase disposable income of the consumers. Similarly, producers will realise lower transport costs as well.

Source: Ministry of Commerce, Acuité Research