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MILD PERFORMANCE OF ENERGY SECTOR LEADS CORE SECTOR GROWTH TO 18 MONTH LOW IN DECEMBER

05 Feb 2019

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Date: 05-02-2019

Impact: Positive (Real Estate, Steel, Cement); Negative (Crude, Petroleum Refinery)

Brief: IIP index for core category has expanded by 2.6% in December, 2018 as against 3.8%, a year earlier. However, in YTD term, the sectors are collectively expanding at a healthy rate of 4.8% in FY19 as against 3.9%, the previous year. It is however noted that the December number is lowest in the past one and half years. Segregation reveals that Non-energy sectors such as steel and cement have witnessed strong growth during the reference period. A rebounding of sorts for the real estate sector has been creating strong demand for steel and cement industries.

IIP index for core category has expanded by 2.6% in December, 2018 as against 3.8%, a year earlier. However, in YTD term, the sectors are collectively expanding at a healthy rate of 4.8% in FY19 as against 3.9%, the previous year. It is however noted that the December number is lowest in the past one and half years. The below average performance in December is primarily attributed to de-growth in major energy sectors such as those associated with crude (-4.3%) and petroleum refinery (-4.8%).

Non-energy sector such as steel and cement, on the other hand, have witnessed strong growth during the reference period. With a 13.2% growth, steel industry remains the best performing industry among the core category. Another industry that catches our interest is cement industry, which has posted 11.6% growth in December, 2018 despite a hostile base (17.7%, the previous year). In YTD term, the industry has been growing by nearly 14% and continues to lead the performance of the core category. The consistent performance of steel and cement industries is associated with the real estate sector. According to Knight Frank data, 76% growth has been recorded in ‘new residential projects’, with units being pegged at 1.82 lakh as of calendar year, 2018. Similarly, sales of residential properties have increased by 6%, reaching 2.42 units. We believe that a rebounding of sorts for the real estate sector has been creating strong demand for other associated industries as well. Given the performance, we continue to peg the collective core sector growth at 4.6% in the current financial.

Source: Ministry of Commerce, Acuité Research