Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IIP: Growth in the laggards - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 13, 2007

    IIP: Growth in the laggards

    The Index of Industrial Production for the month of April 2007 staggered most expectations by clocking a growth of 13.5% over April 2006. The industries that show the highest growth are mostly consumer products like food and beverages, jute, leather, chemicals and machinery other than transport equipment.

    However, it will be incorrect to say consumption demand has exploded based on these growth statistics as almost all these sectors had negative growth rates in April 2006 (see table1). Some of this staggering performance can be attributed to a higher base effect. Electricity generation (amounting to 10.6% of the weight of the IIP) too has shown a brisk growth at 8.7% YoY.

    Unfortunately even planned investments in mining have not been fully utilised. This sector, in the first half of FY07, had decelerated quite significantly and the April 2007 growth of 3.4% harks back to those times.

    Manufacturing: the way the cookie crumbles
    The growing sectors.. (YoY %) Weight Apr-06 4Q FY07 Apr-07
    Chemicals 14.0 14.5 8.8 10.8
    Capital goods 9.6 8.8 12.6 19.2
    Food Products 9.1 -7.4 14.2 55.0
    Furniture & Fixtures 2.7 -7.9 108.2 92.2
    Tobacco, Beverages 2.4 13.9 8.4 12.2
    Leather 1.1 -24.4 4.7 14.7
    Natural plant fibres 0.6 -6.6 -71.4 17.7
    Rubber, Plastic, Petroleum 5.7 4.3 14.3 14.1
    Non-Metallic Mineral Products 4.4 18.5 10.1 10.0
    and the slow growers..
    Metals & Alloys 7.5 21.4 26.5 18.0
    Cotton Textiles 5.5 9.3 18.0 10.5
    Vehicles 4.0 13.8 12.5 5.5
    Metal Products 2.8 4.6 17.2 3.4
    Paper 2.7 9.0 6.8 0.3
    Other manufacturing 2.6 33.8 -4.2 -5.4
    Textile Products 2.5 12.6 10.3 7.1
    Wool, Silk & man-made fibres 2.3 12.7 10.8 2.0
    Source: Central Statistical Organisation

    It is interesting to note that capital goods in the form of machinery and equipment have shown a 19.2% growth in April 2007 as against the 12.6% recorded in the last quarter of FY07. But metal parts and alloys that go into making these machines have shown a significantly lower growth in the same period. So there seems to have been a lowering of demand to build more machinery for the future. Growth rates of other products that would normally reflect a rise in consumption namely textiles and apparels, paper and vehicles have all turned south.

    Do we cheer?
    There is no escaping the harsh realities of India's unstable power and transport situation. These are bound to temper the growth rates in manufacturing. The leaning of the Reserve Bank of India towards raising interest rates to curb consumption demand will further hurt companies. The actual numbers will probably reflect this over the next five to six months. The growth in steel and cement production already has steadied to sedate levels (between 5% and 10%) since the beginning of 2007, reflecting lower investments.

    Also funds not only for consumption, but also for working capital and investments have become dearer in the last six months. However on the micro-scale, due to a shift of the hitherto unregistered sector getting into the mainstream thanks to the changed business environment, we will continue to see some positive growth at the lower end of the manufacturing spectrum.

    Also higher consumer prices (average growth of 8% YoY) may just tilt the balance towards increasing consumption as people feel the returns on fixed income (at about 8% - 9%) would actually erode their capital base. Other than the low base effect, it is this phenomenon that can be reflected in the 22% growth of consumer non-durables like food products, leather and furniture.

    Patience pays
    Any action that is based on these seemingly high growth numbers in the mass consumption sectors could benefit with the luxury of some more time to see how this trend pans out over the next one or two months. Monetary factors like credit growth (that is slowing down gradually) and Reserve Bank of India (RBI's) fixation with the Rupee exchange rates will also impact the interest rate scenario. We sincerely believe it will be extremely counterproductive to domestic growth to raise interest rates yet again over the next one month.



    Equitymaster requests your view! Post a comment on "IIP: Growth in the laggards". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms