Indian industrial output grew modestly by 0.7% in September, led by a 0.9% rise in manufacturing. However, capital goods output declined sharply by 21.6%, indicating weak investment. Consumer durables grew at a stronger 14% due to high urban demand. CPI inflation eased to a 14-month low of 4.2% in October driven by lower food prices, particularly for vegetables, pulses and fruits. Going forward, the government's demonetization policy is expected to weigh on consumption and industrial production for at least a quarter, while lowering unnecessary demand-driven inflation.

1. Nov 18, 2016
• Modest IIP growth at 0.7% in Sep’16 ; IIP witnessed contraction of (-)0.7% in Aug’16
• Manufacturing output revives by 0.9% in Sep’16 v/s (-)0.2% in Aug’16.
• 12 out of the 22 industries in the manufacturing sector recorded positive growth. Mining sector
recorded de-growth for the second consecutive month
• No improvement in investment demand as capital goods sector output declined by (-)21.6% in
Sep’17. During H1FY17, capital goods sector contracted by (-)21.4% .
• Consumer durables sector witnessed growth for sixteenth consecutive month (14.0% v/s 2.2% in
Aug’16) driven by robust urban consumption sentiments
• CPI inflation eased to 14-month low of 4.2% in October due to low food articles prices.
• Inflation was driven lower mainly due to sharp contraction in prices of vegetables, fuel and pulses
IIP grows by 0.7% in September: Indian industrial output, measured by the Index of Industrial Production
(IIP), posted a meager growth of 0.7% in the month of September as compared to (-)0.7% (revised)
contraction in the previous month and 3.7% growth in the same month of previous year. Factory output
was dragged down by sharp contraction in capital goods whose output was declined by (-)21.6% indicating
a poor investment scenario in the country. The growth in other use based sectors also remained weak
except consumer durables. The output of consumer durable sector grew by a stronger pace (14% in Sep’16
v/s 2.2% in Aug’16) on the back of high urban demand amidst the easing interest rate and inflation
scenario. Sector wise, manufacturing, which represented around 75% share in the IIP index, continued to
remain sluggish with a modest growth of 0.9% v/s (-)0.2% in Aug’16 (-0.8% in Apr-Sep’FY17 v/s 4.2% in
Apr-Sep’16). 12 out of the 22 industry groups in the manufacturing sector have shown the positive growth
in the month under review. The output of mining sector contracted by (-)3.1% in reported month, while
electricity revived to 2.4% compared to 0.1% in the previous month. During the first half of current fiscal,
factory output growth stood at (-)0.1% v/s 4.0% in H1FY16.
CPI inflation eases to 4.2% in October: Consumer price index (CPI) or retail inflation fell to
14-month low at 4.2% in the month of October compared to 4.4% (revised) in September and 5.0% in the
Oct’15. Decline in inflation was mainly driven by the decline in the prices of food articles as the increase in
Consumer Food Price Index (CFPI), which represented 47% weight in inflation index, eased to 3.3% in
October from 4.0% in previous months. Inflation in pulses, which had been remained in double digit over
the past few month, eased to 4.1% v/s 14.3% in previous month, while prices of fruits eased to 4.4% in
Oct’16 v/s 14.3% in Sep’16. Inflation in other key items include protein items (6.2% in Oct’16 v/s 5.8% in
Sep’16), cereals (4.4% in Oct’16 v/s 4.2% in Sep’16), sugar (23.6% in Oct’16 v/s 25.8% in Sep’16), fuel &
light (2.8% in Oct’16 v/s 3.1% in Sep’16) and housing (5.2% in Oct’16 v/s 5.2% in Sep’16). Core inflation or
inflation excluding food and fuel items, increased to 8-month high to 4.94% compared to 4.88% in Sep’16
indicating firming up manufacturing products prices. Area wise, retail inflation for rural area reported at
4.8%, higher than the urban areas of 3.5%, while Consumer Food Price Index (CFPI) based inflation
recorded at 3.9% for rural area as against 2.3% in urban area.
Outlook: Factory output at (-)0.1% during the first half of current fiscal remained sluggish due to poor
performance of manufacturing and mining sectors. Production of capital goods, which are considered as
barometer for investment, witnessed a sharp contraction indicating low investments by corporates due to
prevailing low demand. On the other hand, private players are also sitting on high production capacity;
thereby an improvement in capex cannot be expected without the emergence of strong demand in the
economy. Though the macro-economic fundamentals of the country are gradually improving, the
government latest move to demonetize the Rs500 and Rs1,000 currency notes to weigh on consumption
as well industrial production for at least one quarter. Sectors like consumer goods (consumer durables +
consumer non-durables) are likely to get worst hit. Driven by the easing food prices which account for
around 50% of CPI, inflation eased significantly over the last three month and the trend came in line with
the government set inflation target band of +2/-2% (4%). The outlook of food inflation has improved on
the back of normal monsoon this season leading to improvement in the production of vegetables, fruits as
well sowing area of kharif crop. Inflation, which the RBI tracks to set monetary policy, to ease after the
demonetization move as unnecessary demand generated by the unaccounted money will be wiped out
from the system. We are of the view that inflation to trend lower going forward leaving enough room for a
more accommodative monetary policy.
IIP, CPI
IIP grows at subdued 0.7% in September; CPI inflation eases to
14-month low in October
Source: MOSPISEBI Registered – Research Analyst www.choiceindia.com *Please Refer Disclaimer on Website
Monthly Economic Update
Research Analyst
Satish Kumar (022-6707 9913)
Satish.kumar@choiceindia.com
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
India's GDP Gr. (%)
-5.0%
0.0%
5.0%
10.0%
15.0%
IIP Trend
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Manufacturing Core Sector
0.0%
2.0%
4.0%
6.0%
8.0%
CPI Inflation trend
Outlook: Government latest move to abolish the Rs500 and Rs1,000 currency notes to weigh on
domestic consumption for at least one quarter. Inflation, which the RBI tracks to set monetary
policy, to ease after the demonetization move as unnecessary demand generated by the
unaccounted money will be wiped out from the system.

2. Source: MOSPISEBI Registered – Research Analyst www.choiceindia.com *Please Refer Disclaimer on Website
Monthly Economic Update
YoY Sectoral Performance Use-Based Classification
IIP Mining Manufacturing Electricity Basic Capital Intermediate Durables Non-Durables
Index Weight 100.0% 14.2% 75.5% 10.3% 45.7% 8.8% 15.7% 8.5% 21.4%
Sep'16 0.7% -3.1% 0.9% 2.4% 4.2% -21.6% 2.2% 14.0% 0.1%
Aug'16 -0.7% -5.8% -0.2% 0.1% 3.5% -22.1% 3.5% 2.2% -0.4%
Sep'15 3.7% 3.5% 2.7% 11.4% 4.0% 10.1% 1.8% 8.5% -3.6%
Cumulative Growth
Apr–Sep’ FY17 -0.1% 0.0% -0.8% 5. 1% 4.0% -21.4% 3.7% 7.6% -2.4%
Apr–Sep’ FY16 4.0% 1.7% 4.2% 4.5% 4.5% 7.8% 1.9% 7.7% -0.6%
Snapshot of CPI Inflation
% (YoY) Oct’16 Sep’16 Aug’16 Jul’16 Jun’16 Comments
Food, beverages 3.7 4.1 5.8 8.0 7.4 Sharp decline in food index was driven by low prices of pulses and vegetables
Cereals and products 4.4 4.2 4.1 3.9 3.1
Pulses and products 4.1 14.3 22.0 27.5 26.9 Inflation in pulses declined to single digit
Meat and Fish 6.2 5.8 6.0 6.6 6.6
Milk and milk products 4.4 4.3 4.4 4.1 3.4
Fruits 4.4 6.1 4.5 3.5 2.6
Vegetables (5.7) (7.2) 1.0 14.0 14.7 Vegetables prices declined by 5.7% in October
Non-alcoholic beverages 4.1 4.2 4.2 4.3 3.8
Sugar and Confectionary 23.6 25.8 24.8 21.9 16.8
Sugar prices continue to witness rising trend due to supply crunch in the global
market
Clothing and footwear 5.2 5.2 5.2 5.2 5.0
Housing 5.2 5.2 5.3 5.4 5.5
Fuel and light 2.8 3.1 2.5 2.7 2.9 Fuel inflation eased further
Pan, tobc. and intoxicants 7.1 6.8 6.9 6.8 7.3
CPI 4.2 4.4 5.1 6.1 5.8 CPI inflation in Septemrber was driven by low food products prices
CFPI 3.3 4.0 5.9 8.4 7.8
Industry wise break‐up of the manufacturing sector
YoY Growth Rate (%) Sep'16 Aug'16 Jul'16 Jun'16 May'16 Apr'16
Food products and beverages 6.4 0.7 -0.8 0.3 -4.6 -24.5
Tobacco products -2.8 8.1 22.3 3.5 -4.1 -17.6
Textiles 4.1 0.4 2.3 5.5 4.5 3.4
Wearing apparel; dressing and dyeing of fur -5.7 -6.6 -16.2 5.8 -1.2 1
Luggage, handbags, saddlery, harness & footwear; -7.7 -1.8 -10.1 -13.8 -7.6 -9.9
Wood and products of wood & cork except furniture; -0.3 2.2 -7.9 1.4 -6.5 -3.5
Paper and paper products -6.3 -4.2 -0.8 3.9 6.5 5.4
Publishing, printing & reproduction of recorded media 0.7 0.7 -0.9 0.2 -0.7 -12
Coke, refined petroleum products & nuclear fuel 6.3 3.3 12.3 7.6 6.2 17.1
Chemicals and chemical products -0.6 5 5.4 4.5 3.1 -0.9
Rubber and plastics products 4.3 2.7 3.6 3.9 1.0 -0.8
Other non‐metallic mineral products 2.8 2.2 -0.2 5.5 0.8 3.2
Basic metals 11.1 12.4 2 4.3 4.8 -0.3
Fabricated metal products -1.8 1.8 -3.4 8.3 6.1 0.9
Machinery and equipment n.e.c. 10.5 6 8.8 6.4 14.8 7.6
Office, accounting & computing machinery -28.0 -5.2 -9.9 -0.8 18.8 18.7
Electrical machinery & apparatus n.e.c. -49.7 -49.4 -59.2 -46.8 -41.1 -55.9
Radio, TV and communication equipment & apparatus 10.6 15.2 10.9 15.8 5.8 18.8
Medical, precision & optical instruments, -6.2 -6.4 -16.8 0.9 10.1 13.2
Motor vehicles, trailers & semi‐trailers 3.8 3.6 3.6 8.8 5.1 6.6
Other transport equipment 12.8 14.6 1.5 8.7 9.7 6.4
Furniture; manufacturing n.e.c. 10.4 -22.4 -2.5 -9.0 -8.1 28
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
Oct'15
Nov'15
Dec'15
Jan'16
Feb'16
Mar'16
Apr'16
May'16
Jun'16
Jul'16
Aug'16
Sep'16
Oct'16
Urban, rural and CFPI inflation
Rural CPI Urban CPI CFPI-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Indian Industrial Production
Mining Manufacturing Electricity IIP

3. SEBI Registered – Research Analyst www.choiceindia.com *Please Refer Disclaimer on Website
Monthly Economic Update
Macro – Chart Bulletin
Source: NSDL
Source: Markiteconomics
Source: RBI
Source: Commerce Ministry
Source: MOSPI Source: Commerce Ministry
Source: MOSPI Source: SIAM
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
GDP Gr. (%) Gross Fixed Capital Formation (GFCF)
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
0.0
10.0
20.0
30.0
40.0
Apr'15
Jun'15
Aug'15
Oct'15
Dec'15
Feb'16
Apr'16
Jun'16
Aug'16
Oct'16
Rsbn
Trend in merchandise exports and imports
Exports Imports Export Gr.(%) Imports Gr.(%)
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
May'15
Jun'15
July'15
Aug'15
Sep'15
Oct'15
Nov'15
Dec'15
Jan'16
Feb'16
Mar'16
Apr'16
May'16
Jun'16
Jul'16
Aug'16
Sep'16
Core Sector
44
46
48
50
52
54
56
Nikkei Purchasing Managers' Index
Manufacturing Services
4.9%
1.2%0.9%
0.2%
1.7%
2.1%
1.6%
0.2%
1.2%
1.6%1.3%
0.1%
0.0%
2.0%
4.0%
6.0%
0
5
10
15
20
25
CAD ($ bn) CAD/GDP
58
60
62
64
66
68
70
-20,000
-10,000
0
10,000
20,000
30,000
Net FIIs/FPIs Inflows in Equity (Rs cr)
Rs per US$ (monthly average )
-10.0%
0.0%
10.0%
20.0%
30.0%
Growth in Auto sales YoY
PV (Gr.) TW CV (M&HCVs)
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
330
340
350
360
370
380
Forex Reserves ($ billion)
10 year GSec yield % (monthly average )

4. SEBI Registered – Research Analyst www.choiceindia.com *Please Refer Disclaimer on Website
Monthly Economic Update
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