Impact: Positive (Manufacturing)

Brief: The strong domestic and external demand is positively influencing industrial production at this time and commodity related sectors/ industries have been reaping rich rewards as well. Despite a strong base, the Core industries have collectively recorded 4.4% growth in August 2018. The primary drivers are the infrastructure and commodity related sectors such as cement (14.3%), electricity (5.4%), steel (3.9%) and petroleum refinery (5.1%).

Core industry continues with its thirteen-month growth trajectory. Despite a strong base, the industries have collectively recorded 4.4% growth in August 2018. The primary drivers are the infrastructure and commodity related sectors such as cement (14.3%), electricity (5.4%), steel (3.9%) and petroleum refinery (5.1%).

From the sub-sector level perspective, the growth outlook of electricity, cement and steel industries deserve a special mention. Since these three core industries are the mainstay of overall industrial activities, a positive outlook indicates that the industrial production is in an expansionary mode. While cement and steel are driven by a strong push from the Government's infrastructure creating initiatives, electricity is influenced by India's Renewable agenda, which saw nearly 5 GW incremental capacity creation so far this year. In YTD terms however, apart from the exceptional performance of cement, both steel and electricity recorded a minor decline – which may be considered inconsequential.

The strong domestic and external demand is positively influencing industrial production at this time and commodity related sectors/ industries have been reaping rich rewards as well. Coal sector's growth of 2.4% in August 2018, despite strong base of 15.4%, same time last year is a case in point. While it may be noted that the performance of electricity sector has had a strong 'pull effect' on the segment, overall de-growth in Thermal capacity must also be considered. In YTD terms, with expansion of 10.3%, the sector has grown more than 10 times as compared to same, the time previous year.

As evident from India's refinery exports, which are growing at double digit, Petro Refinery sector is another commodity related sector, experiencing a pull effect from strong growth domestically and elsewhere. In YTD terms, the expansion is pegged at 7.4%, as compared to just 1%, same time last year.

Other factors such as PMI Manufacturing have been auguring strong IIP/ Core performance over the past few months. Given the fact that there is a lag effect, the recent trend in PMI manufacturing index is indicating a positive sentiment on the consumption side. As mentioned, the Core Industries, along with the overall IIP, operate with a 2-month lag to PMI and the cascading effects are now apparent. We remain confident of these sectors meeting our growth expectation for the current financial year.

Year on Year growth in Core Industries:

Source: Ministry of Commerce, Acuité Research