Core sector shows decline; worst show in over 4 years

The core sector witnessed its worst performance in over four years for the month August 2019 since it declined by 0.5%.

The combined Index of Eight Core Industries stood at 128.2 in August, 2019, which declined by 0.5% as compared to the index of August, 2018 when it had expanded by 4.7%, according to official data. The last time the core sector declined by such a margin was way back in April 2015 when it had contracted by 0.56%.

Its cumulative growth during April to August, 2019-20 was 2.4%, while it had grown by 5.7% in the corresponding period last year.

The Eight Core Industries comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).

Of the eight core sectors, five recorded a negative growth during the month of August -- coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.

Coal production declined by 8.6% in August, 2019 over August, 2018. Its cumulative index declined by 0.2% during April to August, 2019-20 over corresponding period of the previous year.

Crude oil production declined by 5.4% in August, 2019 over August, 2018. Its cumulative index declined by 6.1% during April to August, 2019-20 over the corresponding period of previous year.

However, the turnaround in refinery products, which is the largest constituent of the core sector, and a small uptick in the growth of fertilisers prevented a deeper contraction in the growth of the core sectors in August 2019.

Petroleum refinery production, with weight of 28.04% increased by 2.6% in August, 2019 over August, 2018.

On the other fertiliser and steel production grew by 2.9%, and 5%, respectively during the month under review.

“The contraction in the core sector growth in August 2019 confirms our view that the modest pickup in the IIP growth in July 2019 did not signal the start of an industrial recovery. With the contraction in the core sector output, auto production and non-oil merchandise exports, we expect the IIP growth to print at a muted sub-1% in August 2019. We continue to expect the MPC to cut the Repo rate by 25 bps in the upcoming October 2019 policy review,” said Aditi Nayar, Principal Economist, Icra.

Analysts are also expecting an impact of this on the IIP numbers for the month of August.

“IIP growth will tend to be anemic in August as there have been less growth seen in the consumer and capital goods segment. While negative growth cannot be ruled out there is a chance of growth being in the 1-2% range given the statistical base effects,” Care Ratings said in a note.