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MOSL: ECOSCOPE-IIP growth slows down to four-month low; Expect GDP growth to moderate in 1QFY20

ECOSCOPE: IIP growth slows down to four-month low; Expect GDP growth to moderate in 1QFY20

 

• Index of Industrial Production (IIP) grew 2% YoY in Jun'19. Although growth was slowest in four months, it was better than consensus of 1.4% and our estimate of 1.1%. In fact, IIP reading for May'19 has been revised upward from 3.1% to 4.6%. Thus, IIP growth stands at 3.6% YoY for 1QFY20, much better than 1.5% in 4QFY19.
• Slowdown in IIP growth can largely be attributed to weakness in both manufacturing and mining. While manufacturing growth was at 1.2% in Jun'19 (v/s 4.5% a month ago), mining sector growth came in at 1.6% (v/s 2.4% in May'19). Power sector growth, however, accelerated to an eight-month high of 8.2% from 7.4% in May'19.
• As per use-based classification, capital goods production declined (by 6.5%) for the second straight month in Jun'19, largely off a high base (+9.7% in Jun'18). Production of consumer goods also decelerated to 1.6% due to a decline in consumer durables. Even infrastructure and construction sector production declined by 1.8% in the month.
• Overall, although IIP growth was higher than expected in 1QFY20, the second consecutive monthly decline in the capital goods sector and the first decline in two years in the construction sector are concerning. In our view, weak investments activity will continue impacting economic activity. Accordingly, we continue expecting a moderation in real GDP growth toward ~5.6% in 1QFY20.