Eight Core Industries for August 2019

India's eight core output growth slows sharply to -0.5% YoY in August 2019.

The growth in eight-core industries' output sharply slowed down to -0.5% year-on-year (YoY) in August 2019 compared to 4.8% YoY growth recorded in August 2018. The deceleration in output growth was led by negative growth in production of crude oil, coal, natural gas, cement, and electricity. The output growth of coal stood at a 3-year low coupled with electricity production at a 6.5 year low which weighed on the overall index. The contraction in August 2019, evidently indicates that there is clear slowdown in the economy and the government needs to act quickly to realise improvement in industrial investment.

Nevertheless, fertilisers (3% weight in eight core index) and production of refinery products (28% weight in eight core index) compared to the previous month improved and prevented further contraction in the overall index. The growth in refinery products stood at 2.6% YoY and fertiliser products grew at a 5-month high of 2.9% YoY in August 2019.

Production of steel that constitutes nearly 17.92% of the eight-core output index moderated to 5% YoY in August 2019 compared to 4% YoY growth registered in August 2018. This growth in steel production can be attributed to the government measures in railways and in urban development-related work.

Cumulatively, during Apr-Aug 2019, the core sector production expanded by 2.5% YoY, far below the last year performance of 5.7% YoY growth.

The slowdown in the core output clearly indicates that the IIP growth will be weak, given the index of eight core output constitutes more than 40% of the industrial production in the nation. The manufacturing sector activity as indicated by manufacturing PMI data supports the stagnation in production activity. The manufacturing PMI stood at 51.4% in September 2019, its joint-lowest since May 2018.

With the nudge that the government tried to provide with the much needed reduction in the corporate tax rates to boost the pessimistic sentiments, it is expected that the policy initiatives might put a cap on the skeptic sentiments controlling the market.