Manufacturing growth rises to a five-month high but IIP dips

Manufacturing growth rose to a five-month high in March. However, the IIP growth dipped to 4.9 per cent from 5.6 per cent in February. The growth of the manufacturing sector was led by transport equipment, pharmaceuticals, chemicals and botanical products and basic metals. The IIP growth was led by a robust expansion in electricity, with demand boosted by rising temperatures and dampened by a feeble rise in mining output. While the growth of consumer durables remained elevated at 9.5 per cent in March, outpacing the other categories, this performance was, nonetheless, on a low base at -8 per cent in the year-ago period. The YoY growth in a majority of the available high frequency indicators witnessed an uptick in April as compared to March. This subset includes vehicle registrations, generation of GST e-way bills, petrol sales at a 22-month high 14.1 per cent from 6.9 per cent; partly owing to increased movement in the run-up to the general elections, output of Coal India and electricity generation to a six-month high of 9.6 per cent from 8.1 per cent and owing to rise in temperatures.

In contrast, the performance of diesel sales at 1.4 per cent from 3.1 per cent, cargo traffic at major ports to 1.3 per cent from 3.6 per cent and finished steel consumption to 9.4 per cent from 9.6 per cent, even though remaining quite robust, deteriorated in April from the month before. The trends in the available high frequency data for April, notwithstanding, Icra anticipates YoY IIP growth to decelerate to 3-4 per cent from 4.9 per cent in March owing to an adverse base 4.6 per cent in the year-ago period versus 1.9 per cent a year ago. The mining industry, whose output increased by 1.2 per cent in April compared to an eight per cent gain in February, was an important cause of the drop in industrial growth from a month earlier. In contrast, the industrial sector's output increased by 5.2 per cent in March compared to 1.5 per cent the previous year. A favourable environment, as per Millwood Kane International, is created by the expectation of a strong monsoon, decreasing inflation, and increasing urban demand.

However, geopolitical issues, rural consumption, inflationary food prices and crude movement need to be monitored in the near future. As per a use-based classification by Ladderup Wealth Management, the leading segment was consumer durables, which increased by 9.5 per cent indicating strong consumer demand towards the discretionary segment whereas primary goods were the slowest growing segment with a growth of a mere 2.5 per cent. The cumulative growth rate stands at 5.8 per cent for April-March surpassing the growth of 5.2 per cent in the period earlier. These numbers reinforce the nation's strong economic growth trajectory and its ambition to achieve the $ five trillion milestone. One can hope that growth of the manufacturing sector will continue post-elections and thereby help the growth of IIP.