Though the inevitable base effect led to a sharp rebound in the March IIP to 2.5% as compared to February’s 0.5%, industrial output grew just 1% for all of FY13—that is the worst in the last 20 years. Not surprisingly, capital goods fell 6.3% over the full year, the mining ban caused mining output to fall 2.5% and a combination of the slowing economy and coal shortages meant electricity growth halved in FY13 in comparison with FY12. What’s interesting is what the data tells us about FY14, and whether a recovery, albeit shallow, is on the cards. Though capital goods showed a slower growth than in February, it suggests a small recovery—barring October, February and March, capital goods recorded a negative growth in every month of FY13.
GDP data also reflect this trend—after falling 4.6% in Q1 gross fixed capital formation (at 2004-05 prices) fell 1% in Q2, before rising by 6.1% in Q3. Some of this is reflected in order inflows at BHEL—flows in Q4FY13 were close to R21,000 crore, a three-fold jump over the R6,800 crore in Q4FY12. Analysts expect the demand for cement to grow by about 7% in FY14, slightly higher than the 6% increase seen in FY13, though this would be well below the 8-9% seen in earlier years. The trend in consumer goods, though, remains weak with companies not able to notch up volumes and lacking pricing power; for a sample of 12 companies including players in both the staples and discretionary spaces, sales rose just 10% yoy in Q4FY13 compared with an increase of 21% yoy in Q3 FY13.
Analysis by Credit Suisse shows how, despite what RBI says, since 2000 onwards, there is a strong correlation between interest rates and capital investments—in other words the strength of the capex recovery will depend on the manner of rate cuts and its transmission in the months ahead. Some initial signs of bottoming out can be seen from auto sales as well. While April sales of all vehicles fell 0.34%, this compares with a 7.7% contraction in March. For the all-important commercial vehicles segment, April sales grew a modest 0.75% yoy but versus minus 6% in March. It is in the passenger car segment that you see the biggest movements. April sales for passenger cars fell 10.4% as compared to a 23% fall in March but sales in the petrol segment rose sharply while those in the diesel segment fell with the government rationalising prices of the fuel. Consumers are responding, but it is early days yet.