India: IP growth rebounds in June – Nomura

Analysts at Nomura note that India’s industrial production (IP) growth improved to a five-month high of 7% y-o-y in June from an upwardly revised 3.9% in May, significantly above expectations (Consensus: 5.5%, Nomura: 5.2%).

Key Quotes

“A favourable base effect has helped – businesses had scaled back production to clear inventory before the GST implementation last year. However, momentum has also improved: on a seasonally adjusted basis, we estimate IP rose 1.2% m-o-m in June versus -0.2% in May.”

“All sectors, barring consumer non-durables accelerated in June. Capital goods output growth picked up to 9.6% y-o-y in June from 6.9% in May, supported by a low base, while infrastructure goods output growth rose to a solid 8.5% from 7.4% previously.”

“Despite the better performance in June, industrial activity softened in Q2 (averaging 5.2% y-o-y from 6.6% in Q1). Still, we forecast Q2 GDP growth (data out 31 August) will accelerate to 7.8% y-o-y, from 7.7% in Q1. However, we believe growth peaked in Q2 and will slow to an average of 7.2% in H2 2018, owing to the fading effects of remonetisation, tighter financial conditions and weaker global growth.”