India’s Manufacturing Growth to Stay Robust on Exports, Capex Push: ICICI Bank Report

India's manufacturing growth is likely to remain supported by exports and a strengthening investment cycle in the coming months despite below-normal monsoon that could weigh on rural demand, according to a report. According to a report by ICICI Bank, exports are expected to remain a bright spot for manufacturing, while rising power demand is signalling strength in the investment cycle as capital expenditure picks up.

"While rural demand could weaken, exports should remain a bright spot thus powering manufacturing growth. Rising power demand too is positive for capex cycle when investment cycle is seen turning up," it added. The report further noted that the improvement in manufacturing was broad-based and reflected both domestic and external demand, ICICI Bank Research said.

The report attributed the momentum to government-led infrastructure spending and improving private-sector capital expenditure. Additionally, ICICI Bank noted that the increase in power demand was also partly explained by the below-normal monsoon. It also expected that exports and the investment cycle to remain key supports for manufacturing growth, while weaker monsoon conditions could weigh on rural consumption. The analysis came following India's industrial production growth accelerating to 8 per cent year-on-year in August from 7.4 per cent in July.

Meanwhile, manufacturing output grew 9 per cent during the month, while electricity production rose 12.3 per cent. However, mining remained weak and contracted 5.6 per cent. In addition, fourteen of the 23 manufacturing sectors recorded growth in August led by electrical equipment, transport equipment and motor vehicles. Electrical equipment output jumped 30.9 per cent, while other transport equipment and motor vehicles grew 25.3 per cent and 25.2 per cent, respectively.

Computer, electronic and optical products recorded 19.3 per cent growth. Signs of a strengthening investment cycle were also visible with capital goods production rising 16.9 per cent in August. Power demand provided another positive signal with electricity generation growing 13.3 per cent and renewable generation increasing 15.4 per cent. Consumer durables are showing stronger momentum than non-durables, suggesting that the improvement in consumption is currently more visible in discretionary goods, according to the report.

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