12 May 2020
E
CO
S
COPE
The Economy Observer
IIP growth collapses in Mar’20
Real GVA/GDP growth could be ~1.5-2.0% in 4QFY20
In view of the nationwide lockdown to contain the spread of the COVID-19 pandemic, price collection for the Consumer
Price Index (CPI) was suspended from the last week of Mar’20. Thus, price points for major groups including ‘clothing
and footwear’, ‘fuel and light’, ‘housing’ for rural areas and ‘miscellaneous’ items were unavailable leading to non-
compilation of overall headline inflation for Apr’20
.
However, the CSO did compile inflation in the ‘food and beverages’ category (excluding
‘Meat and fish’ and ‘Prepared
meals, snacks, sweets, etc’).
As a result, CPI inflation in food (excluding the above mentioned items) came in at 12.0% YoY
in Apr’20 v/s 8.8% a month ago, in line with our much-feared expectation. This indicates that even if inflation in
‘miscellaneous’ items would have declined sharply – from 4.4% in Mar’20 to ~2% in Apr’20 – headline inflation would
have likely crossed 6.5% last month v/s 5.9% in Mar’20.
As for IIP, it came in much worse than MOFSL/market consensus’ estimated decline of 8.6%/8%. It dropped by 16.7% YoY
in Mar’20 as against growth of 4.6% a month ago and 2.7% a year ago. As a result of this massive decline in Mar’20, IIP in
4QFY20 declined 3.8% YoY.
Major reason for the decline in IIP was a record decrease in manufacturing activity in Mar20. Additionally, while mining
activity exhibited marginal decline, power generation declined at the fastest pace in 5 months in Mar’20. Notably, capital
goods production plunged more than 30% YoY in Mar’20 while construction and consumer non-durable goods declined in
the range of 15-25% YoY.
Overall, IIP declined 0.7% YoY in FY20. We expect IIP to decline by ~12% YoY in FY21E with around 44% fall in 1QFY21
alone. Moreover, due to the worse-than-expected Mar’20 IIP, our
EAI-GVA
actually declined 6% YoY in Mar’20 compared
with our preliminary estimate of ~4% fall. This implies that real GVA/GDP growth could be 1.5-2.0% in 4QFY20.
I.
Apr’20 food inflation at 12.0% YoY v/s 8.8% a month ago
In view of the imposed nationwide lockdown to contain the spread of the
COVID-19 pandemic, price collection for the Consumer Price Index (CPI) was
suspended from 19
th
Mar’20. Owing to this suspension, price points for major
groups including ‘clothing and footwear’, ‘fuel and light’, ‘housing’ for rural
areas and ‘miscellaneous’ items was not compiled leading to non-compilation of
overall headline inflation for Apr’20.
The CSO did compile inflation in the ‘food and beverages’ category (excluding
‘Meat and fish’ and ‘Prepared meals, snacks, sweets etc’).
As a result, CPI
inflation in food came in at 12.0% YoY in Apr’20 v/s 8.8% a month ago (Exhibit
1).
As for few major items in the food basket, inflation in ‘cereals and products’
rose to almost 71-month high of 7.8% YoY in Apr’20 and that of ‘pulses and
products’ rose to 45-month high of 22.8% YoY during the month. Inflation in
‘vegetables’ came in at 23.6% YoY in Apr’20, higher than 18.6% a month ago but
much lower than 31.6% YoY in Feb’20. Notably, CPI inflation in ‘fruits’ was at 7-
month low of 2.7% YoY in Apr’20 v/s 3.6% a month ago (Exhibit
2).
The rise in food inflation was in line with our much-feared expectation. Even if
inflation in ‘miscellaneous’ items would have fallen to ~2% from 4.4% in Mar’20,
headline inflation would have likely come at ~6.5% in Apr’20 v/s 5.9% in Mar’20.
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
Yaswi Agarwal
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.