>INDIA MACRO VIEW (CITI)

FY09 Industrial Production ends year on dismal note; down 2.3%YoY in March on back of Capital Goods contraction

■ Mar industrial production — Industrial production contracted by 2.3% in March, higher than our (+0.1%) as well as consensus expectations (-0.7%); largely due to a surprise contraction in capital goods (-8.2%yoy). On a MoM seasonally adjusted basis production was down 1.3%. Cumulatively, industrial growth during FY09 was 2.4% v/s 8.5% in FY08. Lower industrial numbers will likely result in a revision to the CSO’s 7.1% GDP estimate for FY09 (which incorporates value add industrial growth at 4.8%yoy). Looking ahead, we are maintaining our 5.5% growth estimate for FY10 which factors in an additional 50bps easing in policy rates.

■ Key data highlights— (1) Besides the contraction in capital goods; consumer goods also remained in negative territory for the second consecutive month down 0.8%, largely on the back of a fall in non-durables. This needs a close watch since production has declined despite stimulus measures undertaken by the govt over past months (2) intermediate goods saw a contraction for the 8th consecutive month; (3) manufacturing production posted an all-time low since the index was conceived; down 3.3%yoy (see p. 3 for detailed breakdown). (4) Encouragingly, electricity production provided some glimmer of hope, up 6.3%yoy from average growth of 2-3% over previous months.

■ Maintaining forecasts amid mixed macro data— With indicators such as real estate and trade remaining deep in the red; coupled with increasing uncertainty on the election outcome (results are due on May 16); we are currently maintaining our 5.5% GDP estimate for FY10; even as some incremental data is veering towards the positive (cement dispatches, port traffic, telecom subscribers, auto and retail sales).

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