NOV IIP – BETTER THAN EXPECTED

Vast reduction is de-growth – that’s what we are seeing in the IIP for November’19.

After three months of contraction, IIP is positive. The details of the IIP show that the extent of decline has indeed been arrested. But capital goods remains in negative and only when that turns around, we can say that it’s a sustainable, broad based growth.

Lower base effect is a big reason but the fact that it is almost double of what many had expected, IIP at 1.8% is positive news v/s -3.8% in Oct. We need to see a couple of months more before we can say that the green shoots have sprouted. Two more months of a similar growth trajectory is what we need to see. It is going to be a gradual and slow crawl back up.

Sectors which showed positive growth- mining, consumer non-durables, manufacturing and intermediate goods while those which remained in the negative were electricity, consumer durables, capital goods and primary goods.  

In terms of industries, 13 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of November 2019 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ has shown the highest positive growth of 23.2% followed by 12.9% in ‘Manufacture of basic metals’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 13.5% followed by (-) 12.6% in ‘Manufacture of motor vehicles, trailers and semi-trailers’

Headwinds indicate that Govt expenditure will come down and that might impact the manufacturing and thus the IIP in the months ahead.

Sometime before the IIP, Infosys announced its numbers for Q3FY20 and that did bring in some reason for cheer. Its net profit showed an increase of 23% (YoY) at Rs.4457 crore on a 8% rise in revenue at Rs.23,092 crore. The best part – it raised revenue growth forecast in constant currency terms to 10-10.5% for FY20 from 9-10% earlier.

Thus the IIP and Infosys could bring in cheer in the market on Monday, provided geopolitical events do not rock the boat again.