Industrial growth in India unexpectedly declined to 0.1% in March due to a 1.2% contraction in manufacturing output. Consumer price inflation rose to a 3-month high of 5.4% in April, exceeding expectations and driven by high food prices. The RBI is expected to keep interest rates unchanged at its next policy meeting in June given low growth and inflation above the target rate of 5% for fiscal year 2017.

1. May 13, 2016
• IIP grew by marginal 0.1% in March led by poor manufacturing
• Manufacturing growth remained sluggish at (-)1.2%, the fourth contraction in output over the
last five months
• Mining output declined in March, while electricity sector witnessed double digit growth
• Consumer durables sector witnessed 8.7% growth validating the strong urban consumption
sentiments
• Capital goods further recorded contraction indicating weak investments scenario
• IIP growth for FY16 was 2.4% compared to 2.8% in FY15.
• CPI inflation rose to 3-month high of 5.4% in April, higher than the market expectation of 5.1%
• High prices of food articles include pulses, sugar and vegetables attributed to high CPI inflation
• We expect that RBI to keep interest rate unchanged in the coming monetary policy in June
Poor performance of manufacturing dragged down IIP growth: Indicating that growth momentum in
the economy remains vulnerable, Indian industrial output, measured by the Index of Industrial
Production (IIP), grew by marginally 0.1% YoY in March as compared to 2% (revised) in February and
2.5% in the same month of previous year. Subdued IIP growth was mainly attributed to the declined
manufacturing sector, which accounts for around 75% of the index. During FY16, factory output
growth remained at 2.4% compared to 2.8% in the FY15. Manufacturing conditions are not improving
in the country as the sector posted fourth contraction in output over the last five months. In terms of
industries, 12 out of the 22 industry groups in the manufacturing sector have shown positive growth.
Beside manufacturing, mining output also contracted (-)0.1%, however double digit growth in
electricity (11.3%) helped the IIP to show positive growth in the reported month. (Use based
classification) the output of capital goods sector, a measure of investment activities in economy,
contracted by (-)15.4% in the reported month compared to (-)9.5% growth in January. This was the
fifth straight contraction in output indicating weak investment scenario in the economy mainly due to
the weak private sector sentiments. However, consumer durables sector grew by 8.7% in March,
mainly on the back of strong urban demand.
April CPI inflation rose to 3-month high of 5.4%: Consumer price index (CPI) or retail inflation rose to
a three month high at 5.4% YoY in the month of April as compared to 4.8% (final) in March. The
upsurge in inflation was driven by high food prices as Consumer Food Price Index (CFPI), which
represents around 48% weight in CPI index, rose to 6.3% in April from 5.2% in the previous month. The
prices of pulses which rose by 34% remained the major contributor to the food inflation, while
vegetable and sugar prices also rose to 4.8% and 11.2% as compared to 0.5% and 3.9% in the previous
month. Country is facing drought like situation in many states which is adversely impacting the
agriculture production. Retail inflation in rural areas rose 6.1%, while in urban areas it grew 4.7%. CFPI
inflation recorded at 6.6% for rural area compared to 6.0% in the urban area.
Outlook: IIP at 0.1% during March and CPI at 5.4% in April came as a double setback for the Indian
economy. IIP, which reflects subdued growth in the economy demand some initiatives like interest
rate cut or policy measures, but higher CPI, above 5% target for FY17, requires RBI to reduce liquidity
in the banking system. Meanwhile, easing interest cycle has started positive influence as there is some
visibility of revival in demand scenario as consumer durables grew by 11.2% in FY16 compared to
(-)12.6% in FY15. Though this improvement was mainly driven by urban region as subdued country’s
agricultural sector weighed on rural consumption. Concerns have also arisen over near term inflation
outlook as some parts of the country are facing drought situation. The RBI will observe this situation
closely as the present drought conditions in Maharashtra and other parts with very low reservoir
levels can lead to pressure on some products’ prices even if the monsoon remains normal. Given the
prevailing difficult conditions, the RBI is likely to keep interest rate unchanged in the next scheduled
policy meet on June. The IMD's has forecasted an above-normal monsoon which would boost rural
sector demand and will help to arrest the sustained sluggishness in industrial production.
Overall, we are of the view that easing interest rate scenario, contained inflation and enhanced
government’s focus on rural sector and infrastructure development will positively reflect in industrial
output growth going forward.
IIP, CPI
Industrial growth unexpectedly declines to 0.1%; CPI inflation rises
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
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
IIP Trend
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Manufacturing Core Sector
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Jan'15
Mar'15
May'15
Jul'15
Sep'15
Nov'15
Jan'16
Mar'16
CPI Inflation trend

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%
Mar'16 0.1% -0.1% -1.2% 11.3% 4.0% -15.4% 3.7% 8.7% -4.4%
Feb'16 2.0% 5.0% 0.7% 9.6% 5.4% -9.8% 5.7% 9.7% -4.2%
Mar'15 2.5% 1.2% 2.7% 2.0% 2.6% 9.1% 2.8% -4.6% 1.9%
Cumulative Growth
Apr-Mar FY16 2.4% 2.2% 2.0% 5.6% 3.5% -2.9% 2.5% 11.2% -1.7%
Apr-Mar FY15 2.8% 1.4% 2.3% 8.4% 6.9% 6.3% 1.7% -12.6% 2.8%
Snapshot of CPI Inflation
% (YoY) Apr’16 Mar’16 Feb’16 Jan’16 Dec’15 Comments
Food, beverages 6.2 5.2 5.5 6.7 6.3 Sharp increase led by high prices of fruits, vegetables and pulses
Cereals and products 2.4 2.4 2.2 2.2 2.3
Pulses and products 34.1 34.1 38.5 43.3 45.8 Pulses remained the largest contributor to CPI index
Meat and Fish 8.1 7.7 7.3 8.2 6.7
Milk and milk products 3.3 3.3 3.7 3.9 3.9
Fruits 1.7 -1.1 -0.7 -0.4 0.7 Fruits prices bucked the three month declining trend
Vegetables 4.8 0.5 0.7 6.4 4.4
Non-alcoholic beverages 34.1 4.2 4.2 4.6 4.5
Sugar and Confectionary 11.2 3.9 0.5 -1.6 -6.1
Sugar prices rose for the fourth consecutive month due to supply crunch in the global
market
Clothing and footwear 5.6 5.5 5.6 5.7 5.7
Housing 5.4 5.6 5.3 5.2 5.1
Fuel and light 3.0 3.5 4.6 5.3 5.4 Inflation was mainly driven by declined crude oil prices
Pan, tobc. and intoxicants 8.0 8.5 8.5 9.0 9.3
CPI 5.4 4.8 5.3 5.7 5.6 CPI inflation in April was driven by high food product s prices
CFPI 6.3 5.2 5.3 6.9 6.4
Industry wise break‐up of the manufacturing sector
YOY Growth Rate (%) Mar'16 Feb'16 Jan'16 Dec'15 Nov'15 Oct'15
Food products and beverages -15 ‐6.2 ‐1.9 ‐3.4 ‐1.6 ‐0.9
Tobacco products 19.8 13.9 2.9 ‐8.2 4 5.3
Textiles -1.1 4.7 3.8 5.3 ‐3.1 9.6
Wearing apparel; dressing and dyeing of fur 16.9 ‐8.5 ‐1.7 0.6 4.4 6.5
Luggage, handbags, saddlery, harness & footwear; -5.6 -6.9 -9.4 ‐7.5 ‐8.0 17.7
Wood and products of wood & cork except furniture; 2.7 -2.7 -1.7 ‐1.0 ‐11.0 13.7
Paper and paper products -0.5 5.3 3.9 2.8 5.5 6.5
Publishing, printing & reproduction of recorded media -9.9 ‐7.9 ‐12.7 ‐10.7 ‐11.5 ‐10.2
Coke, refined petroleum products & nuclear fuel 11.2 9.8 6.6 3 5.4 ‐2.9
Chemicals and chemical products 2.2 2.1 ‐2.0 2.2 ‐0.4 16
Rubber and plastics products 1 1.2 ‐3.5 1 ‐2.8 8
Other non‐metallic mineral products 8.2 11 6.1 0.4 ‐4.6 7.1
Basic metals -0.9 0.1 ‐4.6 ‐5.3 0.6 ‐2.3
Fabricated metal products -7.7 17.2 5.7 ‐4.0 ‐6.8 13.9
Machinery and equipment n.e.c. -3.8 11.1 2.9 ‐5.1 ‐6.7 13.1
Office, accounting & computing machinery 10.4 37.9 41 17.5 11.8 48.4
Electrical machinery & apparatus n.e.c. -36.2 ‐47.1 ‐50.3 ‐44.9 ‐46.6 23.2
Radio, TV and communication equipment & apparatus 36.5 15.6 22.4 82 9.7 47.5
Medical, precision & optical instruments, 13.6 20.4 -11.5 3.6 ‐8.3 ‐6.8
Motor vehicles, trailers & semi‐trailers 12.3 5.8 3.7 11.5 ‐6.4 17.6
Other transport equipment -0.6 11.8 0.8 ‐1.6 ‐9.3 7.8
Furniture; manufacturing n.e.c. 12.3 27.9 16.3 16.6 102.3 138.9
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Indian Industrial Production
Mining Manufacturing Electricity IIP
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Rural CPI Urban CPI CFPI

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Digitally signed by Satish Kumar
DN: cn=Satish Kumar, o=Choice Equity
Broking Pvt. Ltd., ou=Research Analyst,
email=satish.kumar@choiceindia.com,
c=US
Date: 2016.05.13 16:13:29 +05'30'