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June IIP came as a pleasant surprise at 7% v/s 3.2% in May, beating most estimates. This growth was the highest in the last four months. This growth was led by manufacturing, mining and electricity. The big question mark is whether this is sustainable.

A quick look at the June IIP internals: (MoM)

  • Electricity at 8.5% v/s 4.2%
  • Manufacturing 6,9% 2.8%
  • Mining at 6.6% v/s 5.7%
  • Capital goods at 9.6% v/s 7.6%
  • Infrastructure output at 8.5% v/s 4.9%
  • Consumer durables at 13.1% v/s 4.3%
  • Non-durable 0.5% v/s -2.6%
  • Primary goods 9.3% v/s 5.7%
  • Intermediate goods output at 2.4% v/s 0.9%

June and July was as such expected to be good as seasonally it does see a bump up and this time around, it was more on account of a lower base effect.  Most economists say that they can smell a slowdown in the coming months so it would be too naïve to sound the victory bugle for this month. To put things into a better perspective - July auto sales numbers were not too good… so it is best to wait and watch rather than celebrate and hike the growth targets.

In terms of some more details of the IIP – w.r.t industries, nineteen out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of June 2018 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of computer, electronic and optical products’ has shown the highest positive growth of 44.1 percent followed by 20.5 percent in ‘Manufacture of motor vehicles, trailers and semi-trailers’ and 15.6 percent in ‘Manufacture of other transport equipment’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 40.2 percent followed by (-) 31.7 percent in ‘Manufacture of tobacco products’ and (-) 0.8 percent in ‘Manufacture of textiles’.

Stainless steel utensils, Transformers (Small), Vaccine for veterinary medicine, API & formulations of vitamins, Commercial Vehicles, Cement Clinkers and Detergent cake, washing soap cake/ bar showed high positive growth in production.

On the other hand, Anti-malarial drugs, Jewellery of gold (studded with stones or not), API & formulations of hypo-lipidemic agents incl. anti-hypertriglyceridemics (e.g. simvastatin, atorvastatin, etc); antihypertensive, Copper electrodes, Other tobacco products, Air filters and Copper bars, rods & wire rods were items which showed high negative growth in production.

On Monday, we will have the CPI data which will have more of an impact as that number is more crucial when it comes to policy decision making; once that it over and done with, the rest of the month does not have any more macroeconomic data inflow. Thus it will be back to individual stocks. The resignation of HDFC Bank MD, Paresh Sukhtankar will have a bigger bearing though it looks apparent that it was on amicable terms. SBI’s Rs.4876 crore loss, Jet Airways, Hindalco, Bosch; it would all be about only stock-specific action.

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