February Industrial Production Index (IP) growth recovered to 8.6% year on year (yoy) from a low of 5.8% yoy in January, coming in above the consensus of 7.9% yoy, but continuing the single-digit growth trend which started in November, said Goldman Sachs. IP growth has moderated to 8.7% yoy year-to-date (ytd) in FY08 compared to 11.2% yoy ytd for the same period in FY07. The monthly sequential momentum picked up to 0.7% in February from 0% in January.
Capacity expansion moderating: Capital goods grew by 10.4% yoy, faster than the one-time blip of 2.3% yoy last month, but slower than the 18.4% yoy growth in the first 10 months of the fiscal year. Consumer goods on the other hand, grew at 9.2% yoy, higher than 6% yoy in the first 10 months of the fiscal year, but mostly on a low base. For headline IP, there were some low base effects helping.
The latest IP data shows that growth is continuing to moderate, rather than slow sharply. Key coincident indicators such as cellular subscriptions, the PMI, and non-food credit are also pointing towards continued moderation in activity. The PMI fell to 57.5 in March from 59.5 in February, and 60.7 in January. ``With inflation accelerating and growth moderating, the macro environment continues to worsen. We expect the Reserve Bank of India to tighten 50 bp in April due to the preponderance of inflationary concerns. We therefore expect GDP growth to slow to 7.8% in FY09 from 8.7% in FY08, and the risks to growth are firmly on the downside,`` the global investment banking and securities firm said.