macrodata jm

8/11/2019 Macrodata Jm

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JM Financial Institutional Securities Limited

Weaker Industrial prodn. second month in a row

The Industrial production growth further slowed down in Jul ’14 to 0.5%YoY

on account of weakness in the manufacturing sector even as the Aug’14 CPIinflation moderated marginally to 7.8%YoY. While the Jun’14 Industrial

production number was revised upward marginally (with a likely encore for

the current month in the next release), overall weakness in the

manufacturing sector, if persisted, is worrisome. The monsoon has picked

up in the last two weeks easing partially, concerns over the Rabi crop

output. These two macro releases are the last ones before the RBI’s next

monetary policy on 30th Sep. Despite weakness in the Industrial sector and

moderate down-tick in the CPI inflation (which will continue till Nov’14 in

our opinion), we believe that the RBI will maintain status quo on the Repo

and the Reverse Repo in the monetary policy given that it has already

shifted focus to Jan’16 inflation target of 6% and thereby tamed easing

expectations of the market expectations in 2014.

Aug’14 CPI Inflation at 7.8YoY%: The Aug'14 CPI Inflation came in at

7.8%YoY (7.96%YoY last month), in-line with consensus expectations driven

by a rise in the fruit & vegetable prices. Barring the Food+ sub-index, all the

other sub-indices saw deceleration in inflation. The rural CPI Inflation

continued to remain higher at 8.35% compared to the urban CPI Inflation at

7.04% and the Consumer Food Price Inflation (CFPI) remained firm at 9.4%.

Core inflation at 6.9%YoY is the lowest registered in the current series.

Jul’14 Industrial production at 0.5YoY%: The Jul'14 Industrial production

came in at 0.5%YoY, lower than consensus expectations second time in a row

(Consensus ~1.8%YoY). Electricity sector growth was seen strong at 11.7%.

Weakness was driven by continued slowdown in the Consumer durables

sector (contraction of 20.9%YoY) as the manufacturing sector contracted by1%YoY giving away strength of Q1FY15. The ever-volatile Capital goods sector

growth contracted by 3.8%YoY vs. a 36-month high growth of 23% last month.

Monsoon picks up in the last two weeks. Deficit down to ~11% of LPA:

The monsoon has picked up in the last month with overall deficit narrowing

down to ~11% of long period average (vs. IMD’s prediction of 3%). The deficit

rainfall in 12 of 36 subdivisions has reduced net sown area by ~3% compared

to last year. A pick up in the reservoir level to 77% of Full Reservoir Level

(FRL), while lower than last year’s 84%, eases worries on the Rabi output .

Inflation trajectory after Nov’14 – key focus: While inflation slowed down

marginally in vegetables, fruits continued to see build-up of inflationary

pressures and concerns remain on the volatility of these two categories goingforward. Despite a slowdown in the industrial activity and the fact that the

inflation print will be down from here on till Nov’14, RBI’s shift of focus to

Jan’16 inflation target of 6% (Jan’15 target of 8% looks achieveable now) has

meant that the expectations of easing of the rate cycle have been pushed

back and inflation trajectory post Dec’14 is a key thing to watch out for in our

opinion. Thus, we expect a status quo in the monetary policy on 30th Sep.

Prasad [email protected]

Tel: (91 22) 663030

Exhibit 1: CPI Inflation Trend

4

5

6

7

8

9

10

11

12

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Source: MoSPI, JM Financial

Exhibit 2: Core, Food+ and Fuel+ inflat


Exhibit 3: IIP growth trend


4

6

8

0

2

4

6

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Ju

)Food+ Fuel+ Core

3)

2)

1)

0

1

2

3

4

5

6

Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14

Macro data release

15 September 2014

India | India Strategy

JM Financial Research is also available Bloomberg - JMFR <GO>, Thomson Publisher & Reute

Please see important disclosure at the end of the rep



India Strategy 15 September 20

JM Financial Institutional Securities Limited Page

Jul’14 Industrial Production growth at 0.5%

Industrial Production growth slows down further to 0.5%: Jul’14 Industrial

production growth came in at a 4-month low of 0.5%, lower than consensus

expectations (~1.8%YoY). The Electricity sector showed a robust growth of

11.7%YoY but the Manufacturing sector growth disappointed with a

contraction of 1.0%YoY. 1.

Slowdown in the Consumer durables sector (-20.9%YoY) continued even as

favorable base of the last year will likely optically improve the numbers from

here on. The ever-volatile Capital goods sector contracted by 3.8%YoY vs. a

36-month high growth of 23%YoY last month.2.

12 of 22 industry groups in the manufacturing sector have shown positive

growth as compared to the corresponding month of the previous year.

Jun’14 growth was revised up to 3.9%YoY from 3.5%YoY earlier on account of

an upward revision in manufactured goods and Mining output and a similar

revision is not ruled out for the Jul’14 numbers either.

While marginal down-tick in the Mining and Electricity was expected (Jun’14

strength was partly driven by deficit monsoon helping coal, electricity and

cement), the weakness in the manufacturing sector is worrisome.

E3.Vicky

Exhibit 4. Industrial Production at a glance

(%YoY) Weight Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 FYTD (%YoY

Index of I ndus tri al Producti on 1 00 .0 0.5 3.9 5.0 3.7 (0.5) (2.0) 3.

Mining & Quarrying 14.2 2.1 4.5 2.9 1.7 0.5 2.3 2.

Manufacturing 75.5 (1.0) 2.5 5.1 3.0 (1.3) (3.9) 2.

Electrici ty 10.3 11.7 15.7 6.7 11.9 5.4 11.5 11

Basic goods 45.7 7.6 10.0 6.4 8.6 4.6 4.5 8.

Capital goods 8.8 (3.8) 23.3 4.3 13.4 (11.5) (17.6) 8.

Intermediate goods 15.7 2.6 2.4 3.2 3.0 1.3 4.0 2.

Consumer goods 29.8 (7.4) (9.7) 4.2 (4.8) (2.2) (5.2) (4

Consumer Durables 8.5 (20.9) (23.4) 3.4 (7.7) (11.8) (9.8) (12

Consumer Non - Durables 21.4 2.9 0.6 4.8 (2.7) 5.0 (2.0) 1.

Use based Classification


Exhibit 5. Industrial Production growth trend

By sector By use-based Classification






Exhibit 6. Manufacturing sector which contributed to revival in IIP in Q1FY15 showed contraction in Jul’14

Contribution to IIP growth by sector Contribution to IIP growth by use-based classification


Exhibit 7. Electricity and Mining have shown strength so far even as manufacturing IIP contracted after initial streng

Electricity IIP Index growth – Cumulative FYTD (%YoY) Manufacturing IIP Index growth – Cumulative FYTD (%YoY)


Exhibit 8. Consumer Durables production continued to contract but base effect will bring some respite in near-term

Consumer Durables IIP Index growth – Cumulative FYTD (%YoY) Capital Goods IIP Index growth – Cumulative FYTD (%YoY)


0

50

100

150

200

250

300

Mining Electricity Manufacturing

0

100

200

300

400

500

600

700

Basic goods Interm edia te

goods

Capital goods Consumer goods





Exhibit 9. Manufacturing PMI reading also weakened - albeit with a lag

Manufacturing PMI and Industrial production growth Business Expectation Index and Industrial production growth

Source: HSBC Markit, RBI, JM Financial

Vicky

Exhibit 10. Industrial Production at a glance

Sub-Index Weight Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-1

Food products and beverages 7.3 5.6 1.8 5.0 8.2 6.2 2

Tobacco products 1.6 (7.8) (0.9) 37.1 9.1 (3.8) 0

Textiles 6.2 1.1 1.5 7.0 7.1 0.1 7

Wearing apparel; dressing and dyeing of fur 2.8 (7.4) (5.8) 10.6 (22.1) 26.0 (21.

Luggage, handbags, saddlery, harness & footwear;tanning and dressing of leather products 0.6 3.2 10.6 10.8 5.1 1.8 (0.8

Wood and products of wood & cork except furniture;articles of straw & plating materials 1.1 5.3 (6.1) 3.8 - (8.3) (17.

Paper and paper products 1.0 (2.2) 3.2 (1.4) 3.0 (3.4) (0.

Publishing, printing & reproduction of recorded media 1.1 (6.9) (4.9) (6.4) (4.9) (4.0) (4.0

Coke, refined petroleum products & nuclear fuel 6.7 (5.0) 1.3 (3.5) 1.4 2.0 6

Chemicals and chemical products10.1 6.0 2.2 4.2 (4.6) 2.5 3

Rubber and plastics products 2.0 7.3 3.6 1.1 (2.2) 4.6 (1.4

Other non-metallic mineral products 4.3 11.8 9.5 7.1 6.0 (0.2) 0

Basic metals 11.3 12.3 11.7 8.3 7.9 9.2 2

Fabricated metal products, except machinery &equipment 3.1 (2.2) (0.5) 1.0 8.9 (11.9) (2.

Machinery and equipment n.e.c. 3.8 4.6 4.7 10.0 9.6 0.5 (4.7

Office, accounting & computing machinery 0.3 (26.0) (60.5) (28.6) 2.3 (26.1) (0.

Electrical machinery & apparatus n.e.c. 2.0 (6.2) 69.1 33.7 66.0 (6.5) (24.8

Radio, TV and communication equipment & apparatus 1.0 (58.3) (62.9) (40.3) (31.6) (33.1) (34.Medical, precision & optical instruments, watches andclocks 0.6 1.4 3.5 0.5 (6.5) (21.5) (1.5

Motor vehicles, trailers & semi-trailers 4.1 0.3 7.3 (7.4) (14.6) (14.2) (9.4

Other transport equipment 1.8 17.1 7.7 13.9 6.6 2.8 5

Furniture; manufacturing n.e.c. 3.0 (17.4) (13.4) 60.0 (7.7) (10.2) 8






Aug’14 CPI Inflation at 7.8%

CPI Inflation at 7.8%: The Aug'14 CPI Inflation came in-line with expectations

at 7.8%YoY (Consensus ~7.8%) even as consumer food price inflation

remained firm at 9.42%. Core inflation at 6.9%YoY fell to lowest level in the

current series from a high of 10.6%YoY in Jan’14

The rural CPI Inflation continued to remain higher at 8.35% compared to the

urban CPI Inflation at 7.04%.

Fuel+ continued to moderate and will be further helped by falling crude oil

prices in the coming months and barring Food+ index, all the other indices

showed moderation in price increases.

Food+ group remained the highest contributor to the inflation at ~61%

compared to ~10% from housing sector and ~5% from Clothing and Fuel each.

Vegetable price inflation moderated marginally to ~15% from ~17% last

month even as Fruit prices continued to accelerate ~24% compared to 22%

last month.

The rainfall has picked up substantially last month but parts of the country

have received deficient rainfall (Esp. East and West UP together accounting for

~13% of Gross Cropped Area). While the overall CPI inflation print will tend

downward till Nov’14 on strong base effect and we’re on course to meet the

~8% target of the RBI in Jan’15, concerns remain on volatility in the

agricultural commodity prices in the coming months, especially after the base

effect starts waning in Nov’14.

E11.Vicky

Exhibit 12. All India CPI Inflation at a glance

Weight ( %) Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-

CPI 100.0 7.80 7.96 7.46 8.28 8.59 8.

Food, beverages and tobacco 49.7 9.22 9.14 7.96 9.22 9.64 9.

Fuel and light 9.5 4.15 4.47 4.73 5.00 5.89 6.

Housing 9.8 8.48 8.94 9.15 9.18 9.73 9.

Clothing, bedding and footwear 4.7 8.53 8.66 8.65 8.79 8.68 8.

Miscellaneous 26.3 5.94 6.56 6.54 6.60 6.77 6.


Exhibit 13. CPI Inflation trend

Urban and Rural CPI Inflation All-India CPI Inflation Sub-indices


Core inflation fell to lowest level of 6.9%Y

in the current series but Consumer Food

Price inflation remained firm at 9.4%YoY





Exhibit 14. CPI Inflation trend

Urban CPI Inflation Sub-indices Rural CPI Inflation Sub-indices


Exhibit 15. CPI Inflation – contribution to inflation by broad groups

All India CPI Inflation Sub-indices Rural CPI Inflation Sub-indices


Exhibit 16. CPI Inflation – contribution to inflation by broad groups and rainfall by Gross Cropping Area (GCA)

Urban CPI Inflation Sub-indices Rainfall deficit in key regions and their share of GCA






Exhibit 17. CPI Inflation by sub-indices

Aug-14 Rural Urban All India

Cereals and products 7.85 6.02 7.39

Pulses and products 6.39 8.00 6.88

Oils and fats 2.24 (2.68) 0.70

Egg, fish and meat 7.94 7.35 7.71

Milk and products 11.18 12.49 11.70

Condiments and spices 7.22 14.52 9.36

Vegetables 18.95 7.68 15.15

Fruits 23.55 25.22 24.27

Sugar etc. 1.00 1.41 1.19

Non-alcoholic beverages 6.28 6.18 6.24

Prepared meals etc. 7.50 8.13 7.78

Food, beverages and tobacco 9.64 8.22 9.16

Fuel and light 5.02 2.69 4.15

Clothing and bedding 9.26 7.16 8.53

General Index (All Groups) 8.35 7.04 7.80

Consumer Food Price Inflation 9.83 8.40 9.42






Monthly Macro Indicators

Exhibit 18. Macro SnapshotIndustrial Production Unit Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-

IIP (%YoY) 2.7 (1.2) (1.3) 0.1 1.1 (2.0) (0.5) 3.7 5.0 3.9 0.5

By Sector

Electric ity (%YoY) 12.9 1.3 6.3 7.5 6.5 11.5 5.4 11.9 6.7 15.7 11.7

Manufacturing (%YoY) 1.4 (1.3) (2.6) (1.1) 0.3 (3.9) (1.3) 3.0 5.1 2.5 (1.0)

Mining & Quarrying (%YoY) 3.6 (2.9) 1.6 2.6 2.7 2.3 0.5 1.7 2.9 4.5 2.1

Economic Activity Indicators

CV sales (%YoY) (26.9) (19.8) (28.8) (25.5) (20.9) (29.8) (24.5) (24.0) (15.3) (9.0) (13.6) (5

Car sales (%YoY) 0.7 (3.9) (8.2) (4.5) (7.6) 1.4 (5.1) (10.2) 3.1 14.8 5.0 15

Two-wheelers (%YoY) 19.3 19.4 6.6 3.1 9.4 10.7 22.6 12.3 17.0 13.4 13.9 18

Cement production (%YoY) 2.5 13.9 (14.4) (4.1) 9.9 (11.5) 10.9 9.2 17.2 17.4 21.3

Coal production (%YoY) (8.3) (7.9) (12.0) (5.5) 8.3 (20.2) 53.0 2.1 12.8 9.4 11.0

Power generation (%YoY) 12.9 1.3 6.3 7.5 6.5 11.5 5.4 11.9 6.3 15.7 11.2 12

Aviation passenger km (%YoY) 12.8 10.1 2.1 4.2 (0.4) 1.2 2.2 3.1 4.1 11.2 5.8

Railway Freight (%YoY) 11.8 (2.0) 3.1 4.5 4.1 4.0 2.2 6.1 4.2 2.6 4.3 6

Port traffic - Import growth (%YoY) (3.2) (9.6) (2.1) 2.2 (7.0) (0.7) 11.4 11.3 1.7 5.6 5.4

Port traffic - Export growth (%YoY) 19.2 8.2 (0.5) 5.7 (0.0) (2.8) (2.4) (0.1) 3.0 (4.2) (8.1)

External Sect or

Exports (US$ bn) 27 27 24 26 26 25 29 26 28 26 28

Export growth (%YoY) 10.3 13.1 2.0 1.9 2.4 (5.5) (4.8) 5.3 12.4 10.2 9.7

Imports (US$ bn) 34 38 34 36 36 33 40 36 39 38 40

Import growth (%YoY) (18.8) (14.5) (16.7) (15.3) (18.8) (18.0) (3.4) (15.0) (11.4) 8.3 5.4

Trade deficit (US$ bn) (7) (11) (10) (11) (10) (8) (10) (10) (11) (12) (12)

Services Trade (US$ bn) 5 6 6 6 7 7 6 6 6

Services trade growth (%YoY) (5.2) (0.8) 14.6 0.4 4.4 14.0 7.0 2.0 1.3

FII - Equity (US$mn) 1,994 2,927 1,130 2,527 (13) 420 3,678 1,211 2,781 1,840 1,939 1,05

FII - Debt (US$mn) (1,260) (2,095) (784) 863 2,021 2,555 1,583 (1,847) 3,425 2,674 3,839 2,82

Forex Reserves (US$ bn) 276 283 291 296 291 294 304 310 312 316 321 3

Months of imports Nos 8.1 7.5 8.6 8.1 8.0 8.8 7.7 8.7 8.0 8.3 8.0

Exchange Rate

USDINR 63.7 61.5 62.6 61.8 62.1 62.2 60.9 60.3 59.3 59.8 60.1 60

Change (%MoM) (1.2) 3.4 (1.8) 1.2 (0.4) (0.2) 2.1 0.9 1.7 (0.8) (0.5) (1

Dollar Index 1,021 1,007 1,019 1,019 1,027 1,022 1,017 1,011 1,009 1,011 1,011 1,02

Change (%MoM) 0.4 1.4 (1.1) (0.0) (0.8) 0.4 0.6 0.6 0.2 (0.2) 0.0 (1

REER (36-country trade wtd) 99.4 99.5 102.6 102.9 102.9 102.6 102.0 103.8 104.5 106.6 106.5 105

NEER (36-country trade wtd) 69.5 69.0 70.7 70.0 70.9 71.0 70.9 72.1 72.8 74.1 73.7 73

Monetary Indicators

Money supply (M3) (%YoY) 12.5 13.0 14.5 14.9 14.5 14.5 13.5 13.9 13.2 12.2 12.7 13

10-Yr Govt. Bond Yield (%YoY) 8.8 8.6 8.7 8.8 8.8 8.9 8.8 8.8 8.6 8.7 8.5 8

Wholesale PricesWPI Inflation (%YoY) 7.0 7.2 7.5 6.4 5.1 5.0 6.0 5.5 6.0 5.4 5.2

Primary Artic les Inflation (%YoY) 14.0 14.6 15.3 10.8 6.8 6.3 7.3 7.0 8.6 6.8 6.8

Fuel & Power Inflation (%YoY) 11.7 10.5 11.1 10.9 9.8 8.7 11.8 9.3 10.5 9.0 7.4

Manu. Products Inflation (%YoY) 2.4 2.8 2.9 3.0 3.0 3.4 3.7 3.7 3.5 3.6 3.7

Retail Prices

CPI Inflation (%YoY) 9.8 10.2 11.2 9.9 8.8 8.0 8.3 8.6 8.3 7.5 8.0 7

of which Food+ (%YoY) 11.3 12.4 14.5 12.0 9.9 8.6 9.2 9.6 9.2 8.0 9.1 9

Credit and Deposit

Bank credit growth (%YoY) 15.0 16.0 13.9 14.2 15.7 15.7 13.9 13.8 12.5 13.3 13.3 10

Deposit growth (%YoY) 11.5 14.3 15.6 15.4 16.2 16.6 14.1 14.7 13.4 12.4 13.0 13

Credit/Deposit ratio (%) 78.3 76.9 75.8 76.7 76.7 77.1 78.0 76.7 76.5 77.0 76.5 76

Source: JM Financial





Exhibit 19. Performance and Valuation SnapshotPerformance & Valuations Unit Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug

Global Indices

US (%YoY) 3.3 4.2 2.5 1.9 (2.5) 3.3 0.2 1.1 2.2 2.1 0.5 1

UK (%YoY) 4.4 8.6 (0.4) (0.7) 2.3 4.7 5.8 2.2 (2.1) (0.9) (2.0) (2

Japan (%YoY) 9.7 (1.7) 8.4 2.9 (7.2) (0.6) (1.5) (2.8) 2.8 2.8 3.7 (1

Brazil (%YoY) 7.6 0.8 (4.3) (1.1) (7.8) 0.8 4.5 4.2 0.8 1.8 7.0 6

China (%YoY) 6.9 0.4 2.1 (2.3) (4.7) 3.1 (3.3) 1.8 2.5 0.9 6.5 0

South Africa (%YoY) 6.6 3.7 (2.9) 4.0 (4.5) 5.2 4.5 (0.3) 2.6 1.7 2.8 1

Russia (%YoY) 10.6 3.9 (6.1) 1.8 (8.9) (4.1) (5.4) (3.3) 14.2 4.1 (11.1) (0 Domestic Indices

Sensex (%YoY) 7.8 3.4 (7.5) (0.5) 4.9 3.4 3.4 2.0 3.4 (2.8) 5.2 1

Nifty (%YoY) 14.2 5.5 (5.5) (8.8) (7.8) (1.5) 11.9 4.6 9.7 (1.0) 7.3 (4

Midcaps (%YoY) 7.2 6.6 (2.4) 3.0 (3.0) 2.4 6.4 0.6 7.9 3.6 3.9 1

Smallcaps (%YoY) 7.8 7.2 (2.6) 3.3 (3.5) 2.7 7.3 0.3 7.7 3.8 3.8 1

Auto (%YoY) 6.1 7.1 4.2 6.1 (6.7) 4.1 8.4 5.6 13.9 9.1 (0.4) 1

Banks (%YoY) 6.1 6.7 3.1 8.0 (5.3) 4.1 8.7 8.8 18.0 11.5 (0.6) 2

Capital Goods (%YoY) 9.4 8.1 1.9 (0.4) (5.2) 7.0 5.8 1.4 8.6 5.1 2.6 10

Infrastructure (%YoY) 11.3 13.8 (3.0) 4.3 (10.5) 5.4 19.1 1.3 16.6 (0.3) 3.0 1

Energy (%YoY) 11.9 14.4 6.2 6.2 (8.2) 9.0 17.7 2.5 18.8 7.9 (6.8) (0

FMCG (%YoY) 11.8 8.1 1.0 3.2 (9.6) 2.8 15.0 1.5 17.2 5.0 (2.8) (3

IT (%YoY) 3.3 5.3 (3.0) 2.9 (4.9) 0.9 12.2 0.9 13.9 1.1 (2.2) 3

Metals (%YoY) 10.9 (1.8) (4.7) 1.3 (1.4) 0.5 7.8 (3.8) 0.3 (2.2) 8.8 1

Pharma (%YoY) (0.9) 8.0 (1.4) 8.7 3.8 2.6 (9.1) 0.0 (4.1) 10.1 5.7 3

Power (%YoY) 8.0 5.1 2.5 8.0 (9.5) (5.1) 12.9 4.3 21.2 5.7 0.9 (5

Real Estate (%YoY) 7.3 2.7 (3.2) 5.6 1.3 5.3 (5.0) 7.1 (6.8) 12.0 9.4 8 Telecom (%YoY) 11.5 2.3 1.8 5.0 (10.4) 0.9 13.6 (0.7) 24.8 4.8 (4.0) (5

Sensex 12M Forward PE (x) 13.5 14.2 14.7 14.4 14.6 14.7 14.0 14.9 15.2 15.8 16.2 16

Commodities

Brent Crude US$/bbl 102 104 105 108 104 106 106 106 107 111 108 1

Gold US$/oz 1,347 1,316 1,275 1,221 1,248 1,304 1,335 1,301 1,289 1,286 1,313 1,2

EMBI Spread (bps) 351 337 348 339 346 366 341 316 303 281 282 3 Source: JM Financial





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