Disappointing IIP Growth in August

Industrial Production (IIP) growth decelerated to 5.6%YoY in August from 15.2%YoY in July (revised upwards from 13.8% YoY earlier) and 5.8%YoY in June 2010. One of the predominant factors in driving down growth was a sharp fall in the capital goods index (-2.6% Y-o- Y for Aug vs 72.0% Y-o-Y in July).

Amongst other components, the consumer non durables sector continued to be weak, although durable goods growth remains strong. Intermediate goods, which generally lead the headline index by 2-4 months and has been on a moderating trend, inched slightly higher to 10.0% Y-o-Y in August.

The growth in passenger car sales (23%YoY vs. 29.9% YoY in July) and 2-wheeler sales (24.9%YoY vs. 32.2% YoY in July) remained strong in August. Similarly tax revenue collections (26.6% YoY vs. 24.4% YoY in July). Non-oil imports growth (41.1%YoY vs.
49.6%YoY in July).

Going further in the year Analysts are Divided – A section of them believe,

softening in PMI and exports growth in recent months along with unfavorable base effect in some of the months suggest that incoming IIP numbers will be on the softer side.

While contradicting them say,

expect IP growth to remain in the 8-9% range in the coming months. We maintain our full year F2011 (12-months ending March 2011) IP growth estimate of 8.7%.

Q2 Results and IP for September will pretty much give a direction to the market in the next few weeks.