Why India's industrial production may be on the mend

Headline IP to jump to 1%.

According to DBS, Nov industrial production (IP) due on Friday is unlikely to deviate from the recent stabilisation in activity, albeit still at weak levels.

DBS looks for the headline to print 1.0% YoY up from -1.8% the month before. Half of this pick-up should stem from electricity generation while the mining sector struggles to step up activity despite the partial lift in bans but wait for other clearances.

Here's more:

A reading close to our IP estimate will take Apr-Nov pace to 0.2%, barely above water.

Earlier released, Nov core industries growth notched a slight improvement to 1.7% YoY as the electricity sector offset the weakness in coal, oil and gas output. Further, the spurt in the Nov PMI-manufacturing also lost steam into late-year, nonetheless lifting the reading in the quarter to a shade above 50.0.

Under the hood, the sector is weighed by subdued domestic demand even as global trend turns modestly supportive. This in turn has emerged as a drag on inventory accumulation.

After the notable restocking in FY12/13, manufacturers have preferred to drawdownon existing inventory rather than step-up production. This trajectory is unlikely to make a decisive upturn unless the investment cycle is revived, demand shows signs of sustained pick- up and capacity utilisation picks pace.

The central bank data shows that capacity utilisation rate slipped below 75% in this fiscal year. Thereby, reticence to add to existing capacity ahead of the elections and moderation in demand indicators is expected to keep production trends on the slow burner.

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