India - Politics, Industrials, IT and Large Caps, EMAlpha

Pankaj Sharma

India - Politics, Industrials, IT and Large Caps

Thematic (Sector/Industry)

If we look more closely at the latest Industrial Production (IIP) increase data which reported a strong overall growth of 8.1% yoy, we find a mixed picture emerging on the component wise contribution and growth across categories. The industry group ‘Manufacture of furniture’ has shown highest positive growth of 41.0% followed by 39.0% in ‘Manufacture of wood and products of wood and cork’, which is not as such the indicators of robust capacity creation for an economy. There are other interesting data points as well. Among top five item groups with positive percentage increase in production, some are purely consumption items which will have rather limited impact in terms of long term positive implications for the country.But, what is that we are most worried about? For several previous months, IIP growth data is getting massive support from huge growth in electricity consumption. Electricity has contributed the most in growth even in October data (almost 20% more than mining, the second most important contributor and the one which has double the weight as compared to electricity). But, this could also be primarily driven by Government schemes such as SAUBHAGYA and other initiatives for rural electrification which are in overdrive. If this is not managed well, massive growth in electricity could lead to more stress for DISCOMs (power distribution companies) and that could be harmful for the entire power sector.

If we look more closely at the latest Industrial Production (IIP) increase data which reported a strong overall growth of 8.1% yoy, we find a mixed picture emerging on the component wise contribution and growth across categories. The industry group ‘Manufacture of furniture’ has shown highest positive growth of 41.0% followed by 39.0% in ‘Manufacture of wood and products of wood and cork’, which is not as such the indicators of robust capacity creation for an economy. There are other interesting data points as well. Among top five item groups with positive percentage increase in production, some are purely consumption items which will have rather limited impact in terms of long term positive implications for the country.But, what is that we are most worried about? For several previous months, IIP growth data is getting massive support from huge growth in electricity consumption. Electricity has contributed the most in growth even in October data (almost 20% more than mining, the second most important contributor and the one which has double the weight as compared to electricity). But, this could also be primarily driven by Government schemes such as SAUBHAGYA and other initiatives for rural electrification which are in overdrive. If this is not managed well, massive growth in electricity could lead to more stress for DISCOMs (power distribution companies) and that could be harmful for the entire power sector.

India: How "Free Electricity" Schemes May Be Linked to Excellent Industrial Growth Numbers?

While the media coverage is more focused on RBI vs. Govt controversy and ongoing assembly elections, the data points on economy are getting much less attention such as industrial growth, job creation and fundamentals across various sectors. In addition, more often coverage on Index of Industrial Production (IIP) data is limited to the headline numbers and how the growth has been. However, a closer look at IIP data and detailed analysis of constituents offers interesting insights. The latest IIP numbers reflect that while construction activity remains robust, capital goods industry has started to slow down and that is not a positive sign for capex revival. This higher growth in construction will be positive for <a href="https://www.smartkarma.com/entities/2499" target="_blank">Larsen &amp; Toubro (LT IN)</a>, <a href="https://www.smartkarma.com/entities/7128" target="_blank">Irb Infrastructure Developers (IRB IN)</a>, <a href="https://www.smartkarma.com/entities/12380" target="_blank">Sadbhav Engineering (SADE IN)</a>, <a href="https://www.smartkarma.com/entities/26918" target="_blank">Dilip Buildcon (DBL IN)</a> and cement companies such as <a href="https://www.smartkarma.com/entities/181" target="_blank">Ultratech Cement (UTCEM IN)</a> and <a href="https://www.smartkarma.com/entities/7278" target="_blank">India Cements (ICEM IN)</a>. On the other hand, slow capex is negative for companies like <a href="https://www.smartkarma.com/entities/460" target="_blank">Bharat Heavy Electricals (BHEL IN)</a>, <a href="https://www.smartkarma.com/entities/4578" target="_blank">Thermax Ltd (TMX IN)</a> and <a href="https://www.smartkarma.com/entities/8703" target="_blank">ABB India Ltd (ABB IN)</a>. IIP data also confirms that private sector has still not reached optimal participation levels and this implies that public sector will need to continue driving capex. Better availability in number of hours and improved access for end customers not connected to grid is good for consumer durables companies such as <a href="https://www.smartkarma.com/entities/19924" target="_blank">Voltas Ltd (VOLT IN)</a>, <a href="https://www.smartkarma.com/entities/7270" target="_blank">Whirlpool Of India (WHIRL IN)</a> and <a href="https://www.smartkarma.com/entities/19739" target="_blank">Ifb Industries (IFBI IN)</a>.

While the media coverage is more focused on RBI vs. Govt controversy and ongoing assembly elections, the data points on economy are getting much less attention such as industrial growth, job creation and fundamentals across various sectors. In addition, more often coverage on Index of Industrial Production (IIP) data is limited to the headline numbers and how the growth has been. However, a closer look at IIP data and detailed analysis of constituents offers interesting insights. The latest IIP numbers reflect that while construction activity remains robust, capital goods industry has started to slow down and that is not a positive sign for capex revival. This higher growth in construction will be positive for Larsen &amp; Toubro (LT IN), Irb Infrastructure Developers (IRB IN), Sadbhav Engineering (SADE IN), Dilip Buildcon (DBL IN) and cement companies such as Ultratech Cement (UTCEM IN) and India Cements (ICEM IN). On the other hand, slow capex is negative for companies like Bharat Heavy Electricals (BHEL IN), Thermax Ltd (TMX IN) and ABB India Ltd (ABB IN). IIP data also confirms that private sector has still not reached optimal participation levels and this implies that public sector will need to continue driving capex. Better availability in number of hours and improved access for end customers not connected to grid is good for consumer durables companies such as Voltas Ltd (VOLT IN), Whirlpool Of India (WHIRL IN) and Ifb Industries (IFBI IN). 

India: What You May Have Missed in the Industrial Production Numbers? And Why Is that Important?

India

India Cements Limited manufactures different varieties of cement and clinker. The Company also manufactures and exports textiles.

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India Cements (ICEM IN)

India: How "Free Electricity" Schemes May Be Linked to Excellent Industrial Growth Numbers?

If we look more closely at the latest Industrial Production (IIP) increase data which reported a strong overall growth of 8.1% yoy, we find a mixed...

Pankaj Sharma

India: What You May Have Missed in the Industrial Production Numbers? And Why Is that Important?

While the media coverage is more focused on RBI vs. Govt controversy and ongoing assembly elections, the data points on economy are getting much...

Pankaj Sharma

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)