Brief: Most core sectors witness record levels of expansion in March 2017; the sectors that contributed to the robust growth rate are electricity (6%), steel (11%), coal (10%) and natural gas (8%); these high production numbers in major core sectors indicate that FY17 may end with a solid industrial growth in Q4.

Impact: Positive (Most Segments)

India’s core sector has rebounded with 5% growth in March 2017 from a 15 month low of 1% growth recorded in the previous month. The sectors that contributed to the robust growth rate are electricity (6%), steel (11%), coal (10%) and natural gas (8%). Steel has been recording double digit growth rate for past eight months after restrictions were imposed on the external competition. With 92.2 lakh tons, steel industry has posted highest ever production in March 2017. On a month on month basis, steel production has increased by 8.3% during the reference month. Electricity generation on its part has reached a record level of 107.7 billion kilowatt. With 77 million tons, highly correlated coal production has also touched a new high. Opening up of the mining sector has somewhat resulted in import substitution and therefore Coal production has increased by 20% as compared to the previous month. Healthy growth in both YoY and MoM comparisons indicate an upward trend in production level.

Surprisingly, Natural Gas industry has posted 8% YoY growth in March 2017. Production of this mode of energy has reached to 2.7 billion cubic meters in March 2017. However, no capacity augmentation could take place and production has contracted gradually due to regulatory issues. It must be noted that production of natural gas had reached 4.79 billion cubic meters in March 2010 and therefore the current growth levels do not define the real cut downs that have been plaguing the industry recently.

The cement production has stood at 25.2 million tons (a 9 month high). However, the industry has recorded negative growth of (-) 6.8% YoY in March 2017 as production stood at 27 million tons in March, 2016. The March 2016 production is a historically all-time high number so not much can be judged about the direction at this time given massive consolidations becoming the norm. Even though this industry has expanded by average 4% during Apr-Oct, FY17, in the last five months (in post demonetization period), it has contracted by (-) 8%. As a result, annual growth of the industry turned negative for the first time in twelve years. On a month on month comparison, cement production has expanded by 17.5% though. This indicates that this sector may be recovering after a fall in production during the Nov-Feb, FY17 period – how things develop from here is still nebulous.

Coal, electricity, steel, and cement, which are the prominent components of core sector have witnessed record level of production in March 2017. This will increase capacity utilization of the industry and generate employment opportunities. At the same time, the PMI numbers also indicate confidence that investors have on the market forces. SMERA believes that these high production numbers in major core sectors indicate that FY17 may end with a solid industrial growth in Q4.