Key Takeaways - IIP April 2013

Index of Industrial Production (IIP) has grown at 2.0% for April 2013 (below market expectations of ~2.4%) compared to 3.4% in March 2013 (MoM) (revised upward from 2.5%) and -1.3% in April 2012 (YoY).

Comment: IIP headline data for April came below street expectations. The sluggish growth in IIP was mainly on the back of negative growth in mining & consumer durables. Additionally, muted growth in capital goods and electricity contributed to the slowdown in growth. Core or infrastructural industries, having a weight of 37.9% in the overall IIP, posted a relatively low growth of 2.3% in April, 2013 on the back of continued weakness in sectors like crude oil, natural gas and fertilisers.

Outlook: Going forward, our equity markets might continue to be volatile on account of (1) global equity market weakness due to concerns over tapering of the US Fed quantitative easing program and (2) concerns over rupee weakness. With the recent rupee weakness and its negative implications for inflation, markets have priced in a unchanged repo rate in the upcoming RBI monetary policy meet. Diesel and petrol prices are likely to be hiked over the weekend to adjust for the inflationary impact of the rupee weakness. The Chief Economic Adviser Mr. Raghuram Rajan has talked about raising FDI caps across sectors to enable long-term financing of the CAD and reduce dependence on short term foreign portfolio flows. These steps could provide support to our markets. Over the medium term, we expect global liquidity to be strong as global central banks are unlikely to upset the liquidity environment, given that unemployment in developed markets is far from comfortable and growth uncertainty is still prevalent due to a muted fiscal policy.

We advise investors to use the short term weakness in the market to accumulate quality stocks in (1) sectors with visibility on growth – consumption and pharma, (2) interest rate sensitives like banking and auto, and (3) reform led sectors like oil& gas and media.

Sector-wise growth indicator

· Manufacture sector growth at 2.8% vs. -1.8% (YoY)

· Mining sector growth at -3.0% vs. -2.8% (YoY)

· Capital sector goods growth at 1.0% vs. -21.5% (YoY)

· Electricity sector growth at 0.7% vs. 4.6% (YoY)

· Basic goods growth at 1.3% vs. 1.9% (YoY)

· Intermediate goods growth at 2.4% vs. -1.8% (YoY)

· Consumer durables goods growth at -8.3% vs. 5.4% (YoY)

· Consumer non durables goods growth at 12.3% vs. 2.3% (YoY)