Despite 13.5% growth, industrial performance in Mar '10 fell short of expectations. With the base getting unfavourable, we expect growth to fall to single-digits after May '10. We reiterate our view that the RBI would continue modest tightening in FY11. n Industrial growth moderates further. Industrial growth in Mar '10 at 13.5% was broadly in line with our estimate (14%), but below consensus' (15.1%). Industrial growth peaked in Dec '09 (17.6%) and has been decelerating since then. In FY10, industry grew by 10.4% compared with 2.7% in FY09. n High core growth, but no respite to IIP. Industrial growth moderated despite a strong core sector (six major infrastructure industries with 26.7% weight in the IIP) growth of 7.2% in Mar '10 - the highest in FY10. n Segment-wise analysis. Manufacturing, which accounts for 80% of the IIP, grew 14.3% in Mar '10, much lower than the 19.4% growth registered in Dec '09. Out of the 17 segments within manufacturing, 3 registered negative growth, 5 posted single-digit growth and 9 recorded double-digit growth. Electricity growth at 7.7% in Mar '10 was up from 6.7% in Feb '10. Mining grew 11% in Mar '10, the same as in Feb '10. n Use-based category. Basic goods grew 10.1% in Mar '10 - up from 8.4% in Feb '10. Growth in capital goods at 27.4% in Mar '10 was much lower than the 46% average growth in the last three months. Consumer non-durables continued to post tepid growth (3.3%) in Mar '10, while durables maintained healthy growth (32%). n Industry outlook. A major part of India 's recent explosive industrial growth performance is on account of the very low base of last year. This is likely to drive double digit growth until May '10. Although we do not expect deterioration in the fundamentals of Indian industry, wearing off of the favourable base is likely to lead to industrial deceleration beyond May '10. Any linear extrapolation of India 's recent growth performance into FY11 is likely to lead to eventual disappointments. We expect industrial growth in FY11 to be substantially lower than that in FY10. n Policy rate outlook. In view of (a) likely deceleration of industrial growth to single digit beyond May'10, (b) likely softening of inflation beyond Apr '10 and, (c) huge government borrowing program, we expect only modest monetary tightening - by 50 bps - during FY11 and no intra-policy rate change till the Jul '10 policy. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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