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MOSL: ECOSCOPE-IIP decline in Sep’19 steepest in eight years; Expect GDP growth to moderate further in 2QFY20

ECOSCOPE: IIP decline in Sep’19 steepest in eight years; Expect GDP growth to moderate further in 2QFY20

  The Index of Industrial Production (IIP) declined 4.3% in Sep'19 compared to growth of 4.6% in the year-ago period. The contraction was steeper than both consensus and our estimate of -2.5% and -1.5%, respectively, and more notably, the sharpest since the new series began in 2011. Separately, the IIP number for Aug'19 has been revised to -1.4% from -1.1% earlier. With this, IIP contraction stands at 0.4% for 2QFY20, as against growth of 3.0% in 1QFY20 and 5.3% in 2QFY19.

• The decline in IIP can be attributed to the 11-month continuous decline in capital goods production (-20.7% in Sep'19) and the second consecutive month of a decrease in infrastructure/construction activity (-6.4% in Sep'19). This implies that capital goods production has now declined for the third consecutive quarter (-16.8% in 2QFY20), whereas infrastructure activity has dropped for the first time in 15 quarters (-2.6% in 2QFY20).
• Manufacturing (IIP weight: 77.6%) witnessed its largest decline since the new series began in 2011 of 3.9% in Sep'19 and mining (IIP weight: 14.4%) saw a more than six-year fastest decline of 8.5%. Power generation declined for the second consecutive month by 2.6% in Sep'19 (Exhibit 5). This means that while the manufacturing sector declined 0.4% in 2QFY20, mining declined 1.2% and electricity grew by a mere 0.4% in the quarter.