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Strong IIP – Fiscal Stimulus Withdrawl sooner

November 13, 2009

India’s industrial economy has quickly bounced back from a two-year industrial slowdown in FY2008 and FY2009. IIP growth has averaged 8.9% over last four months, up from an average of 0.9% in the eight months after the collapse of Lehman. We expect IIP growth to move to double digits in 3QFY10E, moderate slightly in 4QFY10E and record a growth of about 8.5% in FY2010E.

We now see IIP growth for FY2010E at about 8.5%, led by a double-digit IIP growth in 3QFY10E. Strong IIP numbers in a rising inflationary environment make a case for an early exit from fiscal and monetary stimulus.

Leaders: Consumer durables continued to outperform, with 12.9% mom and 22.2% yoy growth. Capital goods output jumped 31.3% mom and 12.8% yoy, touching an 18-month
high production-level.

Laggards:
Dismal performance of some core infrastructure industries, viz., crude oil, refinery products, steel and electricity.

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