June core sector up 12.7% boosted by coal, cement and refining
- India Infoline News Service
- 01 Aug , 2022
- 8:50 AM
The core sector growth at 12.7% for June 2022 is lower than the core sector growth achieved in May. However, now the base is fairly high, so even a 12.7% growth in core sector is appreciable. This time around, the base was 9.4% and the COVID effect is reducing, so the 12.7% growth is laudable on a zero base. However, as the sequential core sector growth over May shows, there is pressure in June due to a combination of factors like a fear of a recession, tepid investment scenario, higher cost of funds and input inflation.
A good barometer of how future data will pan out is the revisions in core sector numbers. The first revision in core sector growth for May 2022 marked a 120 bps upgrade from 18.2% to 19.3%. However, the final review of March 2022 core sector resulted in the growth tapering by 10 bps lower from 4.9% to 4.8%. One way to understand the pre-COVID impact is to look at June 2022 core sector growth over June 2020 growth. Over a 2 year period, the core sector for June 2022 is 23.3% above the June 2020 levels. While weak COVID base did play a role, that impact is waning and infrastructure growth is now coming on pure merit.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
The core sector or infrastructure sector number has larger ramifications for the index of industrial production (IIP) and the GDP growth. Core sector has 40.27% weightage in the IIP basket. Apart from the IIP impact, it must be remembered that the infrastructure sector also has strong externalities. For example, the growth in cement and steel, tends to have a multiplier effect on overall GDP growth. These are not the most conducive times for growth and even amidst this uncertainty, the core sector has maintained 12.7% in June 2022.
A quick look at the 8 core infrastructure sectors in June 2022
In June 2022, 7 out of the 8 core sectors were in the green with only crude oil extraction showing negative growth on a yoy basis. Let us begin with the surging infrastructure units. Coal production continued to lead the way with 31.1% growth yoy as heavy power demand and surge in captive mining helped output. Cement output followed with 19.4% growth as construction activity continued in June due to delayed monsoons. Electricity grew 15.5% on a yoy basis while refinery products grew 15.1% in June 2022 amidst record gross refining margins, with the Singapore GRM benchmark well above $20/bbl.
Among the other key growth sectors, fertilizers grew 8.2% on favourable pricing and liberal fertilizer subsidies given to farmers by the government. The growth in steel and natural gas were relatively tepid at 3.3% and 1.2% respectively. The only sector to witness de-growth on a yoy basis was crude oil extraction, where the issues are a lot more systemic with the marginal output from existing wells consistently reducing.
The 12.7% overall core sector growth can be attributed to strong growth from some of the high weightage sectors like refinery products, electricity generation and coal production. These 3 segments account for close to 60% of the total weightage of the core sector and robust growth in all these segments was a key driver in the month of June 2022.
High frequency core sector growth disappointed in June 2022
Here we look at the break-up of the core sector based on YOY indicators and high-frequency growth. We also look at the FY23 cumulative numbers although this is just 3 months, but a quarter is a good starting point.
Data Source: DPIIT (* FY23 is Apr-Jun)
The big data point to watch out is the fourth column of MOM growth (shaded column), which represents high frequency growth over previous month index. The YOY figure can be influenced by the base effect, but the high frequency growth captures short term drivers better. On MOM basis, the core sector growth was negative with unfavourable short term momentum. Six out of the 8 core sectors showed negative high frequency momentum.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity and steel have a high combined weight of over 65%.
b) The second column is the break-up of yoy core sector growth of 12.7%. Here, 7 out of the 8 core sectors are in the positive, with only crude oil contracting. Big positive thrust has come from refinery products, electricity generation, coal and cement.
c) The third column captures high-frequency MOM growth. This is in stark contrast to May 2022, when 7 out of 8 core sectors recorded positive growth MOM. However, in June the situation reversed with 6 out of the 8 core sectors showing negative growth. Apart from Cement and Fertilizers, other showed negative momentum. This can be attributed to factors like supply chain constraints, central bank hawkishness relentless inflation and fears of recession.
Core sector story over the last decade
Here is a time-series pack of annual core sector growth over last 10 years.
Data Source: DPIIT
We have 3-months data for FY23 so the image is still building up. The full year data for FY22 was impressive at +10.4%, while the first quarter of FY23 has been impressive at +13.7%. The big challenge going ahead would be handling the lag effect of supply chain bottlenecks, high inflation and an ultra-hawkish monetary policy.
Most of the infrastructure sectors in the core numbers have strong externalities. The immediate concerns for the future months would be the weak rupee (near 80/$) and the consequent imported inflation. The high frequency data shows clear short term pressure due to the fluid global macro situation. That is not going away in a hurry!
A good barometer of how future data will pan out is the revisions in core sector numbers. The first revision in core sector growth for May 2022 marked a 120 bps upgrade from 18.2% to 19.3%. However, the final review of March 2022 core sector resulted in the growth tapering by 10 bps lower from 4.9% to 4.8%. One way to understand the pre-COVID impact is to look at June 2022 core sector growth over June 2020 growth. Over a 2 year period, the core sector for June 2022 is 23.3% above the June 2020 levels. While weak COVID base did play a role, that impact is waning and infrastructure growth is now coming on pure merit.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
The core sector or infrastructure sector number has larger ramifications for the index of industrial production (IIP) and the GDP growth. Core sector has 40.27% weightage in the IIP basket. Apart from the IIP impact, it must be remembered that the infrastructure sector also has strong externalities. For example, the growth in cement and steel, tends to have a multiplier effect on overall GDP growth. These are not the most conducive times for growth and even amidst this uncertainty, the core sector has maintained 12.7% in June 2022.
A quick look at the 8 core infrastructure sectors in June 2022
In June 2022, 7 out of the 8 core sectors were in the green with only crude oil extraction showing negative growth on a yoy basis. Let us begin with the surging infrastructure units. Coal production continued to lead the way with 31.1% growth yoy as heavy power demand and surge in captive mining helped output. Cement output followed with 19.4% growth as construction activity continued in June due to delayed monsoons. Electricity grew 15.5% on a yoy basis while refinery products grew 15.1% in June 2022 amidst record gross refining margins, with the Singapore GRM benchmark well above $20/bbl.
Among the other key growth sectors, fertilizers grew 8.2% on favourable pricing and liberal fertilizer subsidies given to farmers by the government. The growth in steel and natural gas were relatively tepid at 3.3% and 1.2% respectively. The only sector to witness de-growth on a yoy basis was crude oil extraction, where the issues are a lot more systemic with the marginal output from existing wells consistently reducing.
The 12.7% overall core sector growth can be attributed to strong growth from some of the high weightage sectors like refinery products, electricity generation and coal production. These 3 segments account for close to 60% of the total weightage of the core sector and robust growth in all these segments was a key driver in the month of June 2022.
High frequency core sector growth disappointed in June 2022
Here we look at the break-up of the core sector based on YOY indicators and high-frequency growth. We also look at the FY23 cumulative numbers although this is just 3 months, but a quarter is a good starting point.
| Core Sector Component | Weight | Jun-22 (YOY) % | Jun-22 (MOM) % | FY23 Cumulative (%) * |
| Coal | 10.3335 | +31.1% | -6.1% | +31.2% |
| Crude Oil | 8.9833 | -1.7% | -4.4% | +0.6% |
| Natural Gas | 6.8768 | +1.2% | -3.5% | +4.8% |
| Refinery Products | 28.0376 | +15.1% | -5.1% | +13.5% |
| Fertilizers | 2.6276 | +8.2% | +0.3% | +13.2% |
| Steel | 17.9166 | +3.3% | -7.7% | +6.6% |
| Cement | 5.3720 | +19.4% | +6.9% | +17.1% |
| Electricity | 19.8530 | +15.5% | -2.3% | +16.8% |
| Core Sector Growth | 100.0000 | +12.7% | -4.1% | +13.7% |
The big data point to watch out is the fourth column of MOM growth (shaded column), which represents high frequency growth over previous month index. The YOY figure can be influenced by the base effect, but the high frequency growth captures short term drivers better. On MOM basis, the core sector growth was negative with unfavourable short term momentum. Six out of the 8 core sectors showed negative high frequency momentum.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity and steel have a high combined weight of over 65%.
b) The second column is the break-up of yoy core sector growth of 12.7%. Here, 7 out of the 8 core sectors are in the positive, with only crude oil contracting. Big positive thrust has come from refinery products, electricity generation, coal and cement.
c) The third column captures high-frequency MOM growth. This is in stark contrast to May 2022, when 7 out of 8 core sectors recorded positive growth MOM. However, in June the situation reversed with 6 out of the 8 core sectors showing negative growth. Apart from Cement and Fertilizers, other showed negative momentum. This can be attributed to factors like supply chain constraints, central bank hawkishness relentless inflation and fears of recession.
Core sector story over the last decade
Here is a time-series pack of annual core sector growth over last 10 years.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 |
| Core Sector Growth (%) | 3.8% | 2.6% | 4.9% | 3.0% |
| Year | 2016-17 | 2017-18 | 2018-19 | 2019-20 |
| Core Sector Growth (%) | 4.8% | 4.3% | 4.4% | 0.4% |
| Year | 2020-21 | 2021-22 | 2022-23 (3 mths) | |
| Core Sector Growth (%) | -6.4% | 10.4% | 13.7% |
We have 3-months data for FY23 so the image is still building up. The full year data for FY22 was impressive at +10.4%, while the first quarter of FY23 has been impressive at +13.7%. The big challenge going ahead would be handling the lag effect of supply chain bottlenecks, high inflation and an ultra-hawkish monetary policy.
Most of the infrastructure sectors in the core numbers have strong externalities. The immediate concerns for the future months would be the weak rupee (near 80/$) and the consequent imported inflation. The high frequency data shows clear short term pressure due to the fluid global macro situation. That is not going away in a hurry!
May 2022 core sector up 18.1% even on solid base effect
- India Infoline News Service
- 02 Jul , 2022
- 8:36 AM
The core sector growth at 18.1% for May 2022 is special in two ways. Firstly, this growth comes on top of a 16.4% growth base in May 2021. There is an issue of base adjustment, but it is still stellar growth on a solid base. Secondly, the May 2022 core sector growth is the highest in the last 13 months and also accentuates the core sector growth moving to a sharply higher trajectory. Not to forget, this comes amidst rising inflation, supply chain constraints and central bank hawkishness.
A good barometer of how future data will pan out is the revisions in core sector numbers. The first revision in core sector growth for April 2022 marked a 90 bps upgrade from 8.4% to 9.3%. However, the final review of February 2022 core sector resulted in the growth tapering 10 bps lower from 6.0% to 5.9%. One way to understand the pre-COVID impact is to look at May 2022 core sector growth over May 2020 growth. Over a 2 year period, the core sector for May 2022 is 37.5% above the May 2020 levels. While weak COVID base did play a role, the reality is that infrastructure sector is back to its old growth ways.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
Let us spend a moment to understand why core sector or infrastructure sector has larger ramifications for IIP and GDP growth. Core sector has a weightage of 40.27% in IIP basket. The infrastructure sector is growing on yoy and on pre-COVID basis. Not only does infrastructure have strong externalities for growth levers, but the high weightage makes IIP and GDP closely related to core sector growth. Core sector has grown in May 2022, in spite of negative headwinds for the Indian economy and a challenging global environment.
How the 8 core sectors panned out in May 2022?
In May 2022, all the 8 core sectors were in the green. Let us begin with the high growth segments. Coal production was up 25.1% yoy on a major output thrust and boost to captive mining. Cement output was up 26.3% due to better demand ahead of monsoons. Fertilizers was up 22.8% while electricity grew 22% on a yoy basis. While Fertilizers got a boost ahead of the Kharif season, electricity output growth was also driven by non-conventional sources.
Among the other key growth sectors, refinery products grew 16.7% on record GRMs while steel production grew 15% despite pressure on auto sales. Refinery has the highest weightage of 28.03% in the core sector basket and hence has a disproportionately high impact. Natural gas and crude oil also witnessed growth of 7% and 4.6% respectively in the month of May 2022. Favourable prices helped both stay in the positive.
The 18.1% overall core sector growth can be attributed to strong growth from some of the high weightage sectors like refinery products, electricity generation and steel production. These 3 segments account for more than 65% of the total weightage of the core sector and robust growth in all these segments was a key driver in May 2022.
Core sector from a high frequency perspective
Here we look at the break-up of the core sector based on YOY indicators and high-frequency MOM growth. We also look at the FY23 cumulative numbers although this is just 2 months to begin with, but it will gradually build up over time.
Data Source: DPIIT (* FY23 is Apr-May)
The big data point to watch out is the fourth column of the MOM growth (shaded column), which represents high frequency growth. The YOY figure can be influenced by the base effect, but not the high frequency growth on MOM basis. On a MOM basis, the core sector growth continues to be positive showing favourable short term momentum. Seven out of the 8 core sectors have shown positive high frequency momentum, which is a good indicator. Let us look at some of the key drivers in the above table.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity and steel have a high combined weight of over 65%.
b) The second column is the break-up of yoy core sector growth of 18.1%. Here, all 8 core sectors are in the positive. Big positive thrust has come from refinery products, electricity generation and steel production.
c) The third column captures high-frequency MOM growth. This is the big story for May 2022 with 7 out of 8 core sectors recording positive growth. That is why this column is important. The YOY figure looks stupendous due to the base effect but a look at the MOM figure is the perfect indication that in May 2022, even short term momentum is favourable. This is despite headwinds like the war, supply chain constraints, central bank hawkishness relentless inflation etc. Clearly, core sector is showing resilience.
Taking a macro view of core sector growth over the last decade
Here is a time-series pack of annual core sector growth over last 10 years.
Data Source: DPIIT
For now, we just have 2-months data for FY23 and hence the image is still hazy. The full year data for FY22 looks impressive at +10.4%, surely the best in the last decade; albeit on a negative base of -6.4% in FY21. If you compare FY22 over FY20, core sector growth over pre-COVID period stands at 3.33%. That is almost at par with the average core sector growth in 8 years prior to COVID. That is why, it is crucial to see how FY23 pans out, from 13.6%.
The big challenge going ahead would be handling the lag effect of the supply chain bottlenecks, high inflation and an ultra-hawkish monetary policy. Most of the infrastructure sectors in the core numbers have strong externalities. The rupee weakness is something the Indian economy will have to really handle very smartly.
A good barometer of how future data will pan out is the revisions in core sector numbers. The first revision in core sector growth for April 2022 marked a 90 bps upgrade from 8.4% to 9.3%. However, the final review of February 2022 core sector resulted in the growth tapering 10 bps lower from 6.0% to 5.9%. One way to understand the pre-COVID impact is to look at May 2022 core sector growth over May 2020 growth. Over a 2 year period, the core sector for May 2022 is 37.5% above the May 2020 levels. While weak COVID base did play a role, the reality is that infrastructure sector is back to its old growth ways.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
Let us spend a moment to understand why core sector or infrastructure sector has larger ramifications for IIP and GDP growth. Core sector has a weightage of 40.27% in IIP basket. The infrastructure sector is growing on yoy and on pre-COVID basis. Not only does infrastructure have strong externalities for growth levers, but the high weightage makes IIP and GDP closely related to core sector growth. Core sector has grown in May 2022, in spite of negative headwinds for the Indian economy and a challenging global environment.
How the 8 core sectors panned out in May 2022?
In May 2022, all the 8 core sectors were in the green. Let us begin with the high growth segments. Coal production was up 25.1% yoy on a major output thrust and boost to captive mining. Cement output was up 26.3% due to better demand ahead of monsoons. Fertilizers was up 22.8% while electricity grew 22% on a yoy basis. While Fertilizers got a boost ahead of the Kharif season, electricity output growth was also driven by non-conventional sources.
Among the other key growth sectors, refinery products grew 16.7% on record GRMs while steel production grew 15% despite pressure on auto sales. Refinery has the highest weightage of 28.03% in the core sector basket and hence has a disproportionately high impact. Natural gas and crude oil also witnessed growth of 7% and 4.6% respectively in the month of May 2022. Favourable prices helped both stay in the positive.
The 18.1% overall core sector growth can be attributed to strong growth from some of the high weightage sectors like refinery products, electricity generation and steel production. These 3 segments account for more than 65% of the total weightage of the core sector and robust growth in all these segments was a key driver in May 2022.
Core sector from a high frequency perspective
Here we look at the break-up of the core sector based on YOY indicators and high-frequency MOM growth. We also look at the FY23 cumulative numbers although this is just 2 months to begin with, but it will gradually build up over time.
| Core Sector Component | Weight | May-22 (YOY) % | May-22 (MOM) % | FY23 Cumulative (%) * |
| Coal | 10.3335 | +25.1% | +0.2% | +26.9% |
| Crude Oil | 8.9833 | +4.6% | +3.2% | +1.8% |
| Natural Gas | 6.8768 | +7.0% | +3.7% | +6.7% |
| Refinery Products | 28.0376 | +16.7% | +1.9% | +12.8% |
| Fertilizers | 2.6276 | +22.8% | +31.1% | +16.3% |
| Steel | 17.9166 | +15.0% | +5.0% | +8.4% |
| Cement | 5.3720 | +26.3% | -3.2% | +15.9% |
| Electricity | 19.8530 | +22.0% | +1.5% | +16.7% |
| Core Sector Growth | 100.0000 | +18.1% | +2.6% | +13.6% |
Data Source: DPIIT (* FY23 is Apr-May)
The big data point to watch out is the fourth column of the MOM growth (shaded column), which represents high frequency growth. The YOY figure can be influenced by the base effect, but not the high frequency growth on MOM basis. On a MOM basis, the core sector growth continues to be positive showing favourable short term momentum. Seven out of the 8 core sectors have shown positive high frequency momentum, which is a good indicator. Let us look at some of the key drivers in the above table.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity and steel have a high combined weight of over 65%.
b) The second column is the break-up of yoy core sector growth of 18.1%. Here, all 8 core sectors are in the positive. Big positive thrust has come from refinery products, electricity generation and steel production.
c) The third column captures high-frequency MOM growth. This is the big story for May 2022 with 7 out of 8 core sectors recording positive growth. That is why this column is important. The YOY figure looks stupendous due to the base effect but a look at the MOM figure is the perfect indication that in May 2022, even short term momentum is favourable. This is despite headwinds like the war, supply chain constraints, central bank hawkishness relentless inflation etc. Clearly, core sector is showing resilience.
Taking a macro view of core sector growth over the last decade
Here is a time-series pack of annual core sector growth over last 10 years.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 |
| Core Sector Growth (%) | 3.8% | 2.6% | 4.9% | 3.0% |
| Year | 2016-17 | 2017-18 | 2018-19 | 2019-20 |
| Core Sector Growth (%) | 4.8% | 4.3% | 4.4% | 0.4% |
| Year | 2020-21 | 2021-22 | 2022-23 (2 mths) | |
| Core Sector Growth (%) | -6.4% | 10.4% | 13.6% |
Data Source: DPIIT
For now, we just have 2-months data for FY23 and hence the image is still hazy. The full year data for FY22 looks impressive at +10.4%, surely the best in the last decade; albeit on a negative base of -6.4% in FY21. If you compare FY22 over FY20, core sector growth over pre-COVID period stands at 3.33%. That is almost at par with the average core sector growth in 8 years prior to COVID. That is why, it is crucial to see how FY23 pans out, from 13.6%.
The big challenge going ahead would be handling the lag effect of the supply chain bottlenecks, high inflation and an ultra-hawkish monetary policy. Most of the infrastructure sectors in the core numbers have strong externalities. The rupee weakness is something the Indian economy will have to really handle very smartly.
September core sector bounces to 7.9% on government capex thrust
- India Infoline News Service
- 01 Nov , 2022
- 4:55 PM
After a rather disappointing core sector growth of 3.3% in August 2022, the month of September 2022 saw a rebound in core sector growth to 7.9%. Incidentally, core sector growth had been consistently falling from 19.3% in May 2022 to 13.2% in June 2022 to 4.5% in July 2022 and 3.3% in August 2022. It is in this light that the rebound in core sector growth in September 2022 to 7.9% is laudable. While it is partly true that a lower base may have magnified the core sector growth in September, there is also the element of sustained government capital expenditure that has resulted in core sector traction.
A good barometer of how future data will pan out is the revisions to previous core sector numbers. The first revision in core sector growth for August 2022 has seen a positive revision by 80 basis points from 3.30% to 4.10%. However, the final revision for June 2022 resulted in core sector growth edging lower by 10 bps from 13.20% to 13.10%. Overall, the more recent upgrades in core sector growth are showing the direct impact of the government investing more into infrastructure and capex spending, with its concomitant salutary effects on the economy overall.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
The core sector or infrastructure sector, has larger ramifications for the index of industrial production (IIP) and the GDP growth. That is because, the core sector has a weight of 40.27% in the IIP basket. Apart from the IIP impact, the infrastructure sector also has strong externalities with wider impact. For instance, growth in cement and steel, have a multiplier effect on overall GDP growth. The big signal this month comes from the government which has given a boost to the core sector growth with its active investments in infrastructure capex (capital expenditure). The core sector on a cumulative basis for FY23 has remained robust at 9.6% despite global and domestic headwinds. That is the good news to savour.
September 2022: How the 8 pillars of core sector performed?
In September 2022, 6 out of the 8 core sectors were in the green with crude oil extraction and natural gas once again showing negative growth on a yoy basis. Let us start with the segments that triggered the core sector growth. Thanks to the tireless efforts of Coal India and the thrust on captive coal mining; the coal sector output led the way with 12% yoy growth. Fertilizers was another star in the month of September, growing at 11.8%; almost at par with the previous month momentum. Among others; electricity grew by 11%, cement by 12.1%, steel by 6.7% and refinery products by 6.6%. The genuine turnaround in the cement and steel output during the month of September is a direct outcome of the government thrust on capex, that is having spill over effects on the output of core sectors.
Crude oil extraction and natural gas saw lower output in September 2022 due to pricing issues in gas (it was revised towards the end of September) and ageing wells for crude oil production. Not surprisingly, the government has been going all guns blazing giving out blocks for oil extraction at a rapid pace. Interestingly, in the case of natural gas, it is the domestic pricing policies that are taking a toll. The positive 7.9% core sector growth can be attributed to strong growth in refinery products, which has a 28.04%, electricity output with a weight of 19.85% and coal which has a weightage of 10.33%. Cement and steel also contributed handsomely to the overall core sector in the quarter as they were the direct beneficiaries of enhanced capex investments by the government.
High frequency core sector disappoints for fourth month in a row
Here we look at the break-up of the core sector based on YOY indicators and high-frequency growth. We also look at the FY23 cumulative numbers. As of now we have 6 months of data, which can be a fair reflection of the longer term trend.
Data Source: DPIIT (* FY23 is Apr-Sep)
The critical data point to watch out is the fourth column of MOM growth (shaded column), which represents high frequency growth for September over August. While the YOY figure is influenced by the base effect, the high frequency MOM growth captures short term headwinds and tailwinds a lot better. That is why it is considered a much better high frequency indicator. On MOM basis, core sector growth was negative for the fourth month in a row with just 5 out of 8 sectors showing negative momentum, 2 sectors showing positive momentum and coal output showing flat to neutral momentum.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity, Coal and steel have a high combined weight of over 75% and the overall core sector growth is most likely to gravitate these numbers.
b) The second column is the break-up of yoy core sector growth of 7.9% for September 2022. Here, 6 out of the 8 core sectors are once again in the positive, with crude oil and natural gas contracting on a yoy basis. Positive thrust came from refining, coal and electricity; but it was steel and cement that depicted the government capex spending driven momentum in the core sector numbers.
c) The third column captures high-frequency MOM growth, which is in the negative for the fourth month in a row. In September 2022, only 2 out of the 8 core sectors have shown positive growth on MOM basis viz. steel and cement. That is where most of the momentum from government spending has come. While coal output was neutral MOM, the other five sectors saw contraction in core sector output on a high frequency basis.
How core sector has performed over last 10 years
Here is a time-series pack of annual core sector growth over last 10 years.
Data Source: DPIIT
We have 6-months data for FY23 so the picture is fairly representative. The full year data for FY22 was impressive at +10.4% but that was on a negative base, so we cannot attach too much credence to that number. However, FY23 growth is more genuine and while it has been losing short term momentum, the context is that the overall figure still remains robust amidst all the global macro headwinds. There are several major headwinds like recession fears, supply chain bottlenecks, high inflation and ultra-hawkish central banks.
The one area of concern is the weak rupee (at around 83/$) and the resultant imported inflation. High frequency data of last 4 months betrays a lot of short term pressure on the core sector numbers. However, the latest month data indicates that the government capex spending is having a salutary impact on core sector numbers. That is a positive takeaway!
A good barometer of how future data will pan out is the revisions to previous core sector numbers. The first revision in core sector growth for August 2022 has seen a positive revision by 80 basis points from 3.30% to 4.10%. However, the final revision for June 2022 resulted in core sector growth edging lower by 10 bps from 13.20% to 13.10%. Overall, the more recent upgrades in core sector growth are showing the direct impact of the government investing more into infrastructure and capex spending, with its concomitant salutary effects on the economy overall.
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
The core sector or infrastructure sector, has larger ramifications for the index of industrial production (IIP) and the GDP growth. That is because, the core sector has a weight of 40.27% in the IIP basket. Apart from the IIP impact, the infrastructure sector also has strong externalities with wider impact. For instance, growth in cement and steel, have a multiplier effect on overall GDP growth. The big signal this month comes from the government which has given a boost to the core sector growth with its active investments in infrastructure capex (capital expenditure). The core sector on a cumulative basis for FY23 has remained robust at 9.6% despite global and domestic headwinds. That is the good news to savour.
September 2022: How the 8 pillars of core sector performed?
In September 2022, 6 out of the 8 core sectors were in the green with crude oil extraction and natural gas once again showing negative growth on a yoy basis. Let us start with the segments that triggered the core sector growth. Thanks to the tireless efforts of Coal India and the thrust on captive coal mining; the coal sector output led the way with 12% yoy growth. Fertilizers was another star in the month of September, growing at 11.8%; almost at par with the previous month momentum. Among others; electricity grew by 11%, cement by 12.1%, steel by 6.7% and refinery products by 6.6%. The genuine turnaround in the cement and steel output during the month of September is a direct outcome of the government thrust on capex, that is having spill over effects on the output of core sectors.
Crude oil extraction and natural gas saw lower output in September 2022 due to pricing issues in gas (it was revised towards the end of September) and ageing wells for crude oil production. Not surprisingly, the government has been going all guns blazing giving out blocks for oil extraction at a rapid pace. Interestingly, in the case of natural gas, it is the domestic pricing policies that are taking a toll. The positive 7.9% core sector growth can be attributed to strong growth in refinery products, which has a 28.04%, electricity output with a weight of 19.85% and coal which has a weightage of 10.33%. Cement and steel also contributed handsomely to the overall core sector in the quarter as they were the direct beneficiaries of enhanced capex investments by the government.
High frequency core sector disappoints for fourth month in a row
Here we look at the break-up of the core sector based on YOY indicators and high-frequency growth. We also look at the FY23 cumulative numbers. As of now we have 6 months of data, which can be a fair reflection of the longer term trend.
| Core Sector Component | Weight | Sep-22 (YOY) % | Sep-22 (MOM) % | FY23 Cumulative (%) * |
| Coal | 10.3335 | +12.0% | 0.00% | +21.0% |
| Crude Oil | 8.9833 | -2.3% | -1.96% | -1.3% |
| Natural Gas | 6.8768 | -1.7% | -1.23% | +1.8% |
| Refinery Products | 28.0376 | +6.6% | -2.75% | +10.1% |
| Fertilizers | 2.6276 | +11.8% | -2.98% | +11.5% |
| Steel | 17.9166 | +6.7% | +1.00% | +6.4% |
| Cement | 5.3720 | +12.1% | +4.36% | +10.9% |
| Electricity | 19.8530 | +11.0% | -2.61% | +10.7% |
| Core Sector Growth | 100.0000 | +7.9% | -1.15% | +9.6% |
The critical data point to watch out is the fourth column of MOM growth (shaded column), which represents high frequency growth for September over August. While the YOY figure is influenced by the base effect, the high frequency MOM growth captures short term headwinds and tailwinds a lot better. That is why it is considered a much better high frequency indicator. On MOM basis, core sector growth was negative for the fourth month in a row with just 5 out of 8 sectors showing negative momentum, 2 sectors showing positive momentum and coal output showing flat to neutral momentum.
a) The first data column is the weightage column which tells you how much impact a change in a particular component can have on the overall core sector growth. Refinery products, electricity, Coal and steel have a high combined weight of over 75% and the overall core sector growth is most likely to gravitate these numbers.
b) The second column is the break-up of yoy core sector growth of 7.9% for September 2022. Here, 6 out of the 8 core sectors are once again in the positive, with crude oil and natural gas contracting on a yoy basis. Positive thrust came from refining, coal and electricity; but it was steel and cement that depicted the government capex spending driven momentum in the core sector numbers.
c) The third column captures high-frequency MOM growth, which is in the negative for the fourth month in a row. In September 2022, only 2 out of the 8 core sectors have shown positive growth on MOM basis viz. steel and cement. That is where most of the momentum from government spending has come. While coal output was neutral MOM, the other five sectors saw contraction in core sector output on a high frequency basis.
How core sector has performed over last 10 years
Here is a time-series pack of annual core sector growth over last 10 years.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 |
| Core Sector Growth (%) | 3.8% | 2.6% | 4.9% | 3.0% |
| Year | 2016-17 | 2017-18 | 2018-19 | 2019-20 |
| Core Sector Growth (%) | 4.8% | 4.3% | 4.4% | 0.4% |
| Year | 2020-21 | 2021-22 | 2022-23 (6 mths) | |
| Core Sector Growth (%) | -6.4% | 10.4% | 9.6% |
We have 6-months data for FY23 so the picture is fairly representative. The full year data for FY22 was impressive at +10.4% but that was on a negative base, so we cannot attach too much credence to that number. However, FY23 growth is more genuine and while it has been losing short term momentum, the context is that the overall figure still remains robust amidst all the global macro headwinds. There are several major headwinds like recession fears, supply chain bottlenecks, high inflation and ultra-hawkish central banks.
The one area of concern is the weak rupee (at around 83/$) and the resultant imported inflation. High frequency data of last 4 months betrays a lot of short term pressure on the core sector numbers. However, the latest month data indicates that the government capex spending is having a salutary impact on core sector numbers. That is a positive takeaway!
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A good barometer of how future data will pan out is the revisions in core sector numbers.
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