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MOSL: ECOSCOPE-IIP declines for the first time in four years-Destocking in the run-up to GST implementation leads to lower manufacturing output

​ECOSCOPE: IIP declines for the first time in four years; Destocking in the run-up to GST implementation leads to lower manufacturing output

• The Index of Industrial Production (IIP) declined by 0.1% YoY in June 2017, worse than our expectation of a 0.6% rise (and market consensus of +0.1%). Notably, this was the first instance of a decline in four years.
  
• Manufacturing was the main culprit, declining by 0.4% YoY on account of destocking in the run-up to GST implementation. The decline was broad-based, with nearly two thirds of the sector reporting a contraction in output. Growth in mining & electricity production was also sluggish.
  
• As per use-based classification, capital goods and consumer durables remained weak, with output falling by 6.8% and 2.1% YoY, respectively. Output of capital goods has declined in eight of the last 12 months, reflecting the ongoing slump in capex. Output in consumer durables too has declined continuously post demonetization.
  
• IIP has risen by just 2% YoY in 1QFY18 - the slowest pace in eight quarters. We expect IIP growth to recover to 2.2% in July 2017 after the poor show in June. Our full-year FY18 growth estimate is ~3.5% as against 4.6% in FY17. The FY17 number has been revised downward from +5% earlier.