>INDIAN INDUSTRIAL PRODUCTION (MORGAN STANLEY)

Industrial Production Recovers in May

• Industrial production (IP) growth recovers to 2.7%YoY in May: This compares with growth of 1.2%YoY (revised downwards from 1.4% earlier) in April and a decline of 0.8% in March 2009. The growth in May was higher than the market’s and our expectations.

• Growth in the manufacturing segment rebounds: Growth in the manufacturing segment picked up to 2.5%YoY in May, compared with 0.4% registered in the previous month. The key contributors to this improvement were food products, other manufacturing industries, rubber, plastic, petroleum & coal products, and basic chemicals & chemical products. Mining segment growth decelerated slightly to 3.7%YoY (vs. 3.9% in the previous month). Growth in the electricity segment decelerated to 3.3%YoY, compared to 7.1% in April.

• Growth in consumer goods improves; capital goods turns less bad: On use-based classification, growth in the consumer goods segment accelerated to 1.2%YoY in May after declining 3.6%YoY in April. Within consumer goods, while the durables segment growth decelerated to 12.4%YoY (vs. 17.2% in April), the YoY decline in the non-durables segment narrowed to -2.3%YoY (vs. -9.1% in April). Capital goods declined 3.6%YoY, compared with a decline of 7.3% in the previous month, helped partly by the low base effect. Growth in basic and intermediate goods decelerated to 3.8%YoY and 6.1%YoY, respectively, in May (vs. 4.7% and 7.3% in April).

• IP growth to stay on the recovery path: Most domestic demand indicators, such as passenger car sales (18.1%YoY in June vs. 8.7% earlier), commercial vehicle sales (-15.1%YoY vs. -18.9% earlier), two-wheeler sales (14.9%YoY vs. 11.5% earlier), and cement dispatches (13.2%YoY estimated vs. 10.8% earlier), are indicating improvement in industrial activity in June.

To see full report: IIP