Jan-25 core sector bounces to 4.59%, led by a turnaround in refining

4 Mar 2025 , 09:10 AM

CORE SECTOR ROBUST FOR FIFTH MONTH IN A ROW

Since the core sector contracted by -1.45% in August 2024, the core sector has shown a steady recovery. The 81 bps revision in the December 2024 core sector growth is a clear indication that momentum is shifting in favour of a capex led recovery. In the 12 months prior to the latest data point, the average core sector growth stood at 4.71%, so we are largely back on track. The big positive surprise in Jan-25 was the sharp 8% plus rally in refinery products, which had a durable impact considering its weightage of over 28% in the core sector basket. What about revisions? October core sector final revision saw an upgrade of 13 bps from 3.71% to 3.84%, while the first revision for December was an 81 bps upgrade from 3.97% to 4.78%.

CORE SECTOR LEADERS AND LAGGARDS IN JANUARY 2025

In the 8-infrastructure core sector basket, the maximum weightage is cornered by refinery products at 28.04%, followed by electricity at 19.85% and steel at 17.92%. In January 2025, these while steel and electricity were relatively subdued at 3.67% and 1.32%; the real thrust came from the 8.31% growth in refinery products. Cement was the other major positive surprise in Jan-25; growing at 14.46%, showing sharp revival in infrastructure demand. The core sector basket has 40.27% weight in the IIP basket, and has a multiplier effect on GDP.

For January 2025, the expanding core sectors outnumbered the contracting core sectors by a ratio of 6:2. However, there is an interesting story in the laggards. Natural gas has seen output contraction for the last 7 months in succession; while crude oil output has seen output contraction in 8 out of the last 9 months. While coal output continued to be robust at 4.64% in Jan-25, the demand for electricity fell to a growth of just 1.32% in January.

BREAKING DOWN THE JANUARY 2025 CORE SECTOR GROWTH

The table captures the breakdown of the +4.59% core sector growth for January 2025 across its 8 major sectoral components.

Months	Overall (%)	Coal (%)	Crude (%)	Natural Gas (%)	Refinery (%)	Fertilizers  (%)	Steel  (%)	Cement (%)	Electricity  (%)
Jan-24	4.16	10.57	0.64	5.45	-4.30	-0.59	9.17	4.06	5.68
Feb-24	7.06	11.57	7.93	11.19	2.63	-9.50	9.44	7.82	7.59
Mar-24	6.25	8.70	2.07	6.30	1.59	-1.27	7.53	10.58	8.62
Apr-24	6.94	7.51	1.73	8.56	3.92	-0.76	9.83	0.16	10.24
May-24	6.86	10.20	-1.14	7.51	0.50	-1.66	8.94	-0.63	13.74
Jun-24	5.00	14.78	-2.62	3.27	-1.54	2.45	6.31	1.79	8.58
Jul-24	6.27	6.82	-2.92	-1.27	6.62	5.31	6.99	5.12	7.94
Aug-24	-1.45	-8.05	-3.44	-3.61	-1.03	3.15	4.13	-2.53	-3.72
Sep-24	2.44	2.64	-3.87	-1.30	5.76	1.89	1.81	7.58	0.49
Oct-24	3.84	7.76	-4.85	-1.25	5.20	0.37	5.71	3.14	1.96
Nov-24	4.39	7.49	-2.12	-1.94	2.90	2.02	4.36	13.48	4.42
Dec-24	4.78	5.29	0.65	-1.76	2.83	1.67	7.26	4.64	6.17
Jan-25	4.59	4.64	-1.14	-1.51	8.31	2.96	3.67	14.46	1.32

Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)

Let us look at some of the standout performers. On the downside, only natural gas and oil exploration saw output contraction; which has been the trend for the better part of the last one year. The big positive surprises in the latest month were cement growing at 14.46% and refinery products growing at 8.31%. In fact, refinery products with a weight of over 28% had an inordinately strong impact on the core sector growth in January 2025.

HIGH FREQUENCY CORE SECTOR GROWTH (JANUARY 2025)

While the regular yoy growth captures long term trends, it is too sensitive to the base effect. High frequency MOM data captures the short term trend in core sector.

Core Sector Component	Weight	Jan-25 (YOY) %	Jan-25 (MOM) %	FY25 Cumulative (%) #
Coal	10.3335	+4.64%	+6.83%	+6.01%
Crude Oil	8.9833	-1.14%	+0.00%	-1.98%
Natural Gas	6.8768	-1.51%	+0.00%	+0.49%
Refinery Products	28.0376	+8.31%	-1.27%	+3.30%
Fertilizers	2.6276	+2.96%	-0.57%	+1.75%
Steel	17.9166	+3.67%	+1.85%	+5.86%
Cement	5.3720	+14.46%	+9.56%	+4.55%
Electricity	19.8530	+1.32%	+3.63%	+5.01%
Core Sector Growth	100.0000	+4.59%	+2.43%	+4.36%

Data Source: DPIIT (# FY25 is 10-months data)

After seeing positive MOM growth of +6.75% in December 2024; it has sustained the short-term momentum by growing at 2.43% in January 2025. However, positive MOM growth was only visible in 4 out of the 8 sectors viz.; coal, steel, cement, and electricity. While the MOM growth in refinery products and fertilizers was in the negative; crude oil and natural gas saw flat growth on MOM basis. The good news is that sectors like cement, which are a manifestation of turnaround in infra demand; have been positive for two months in a row.

CHARTING LONG TERM STORY OF CORE SECTOR GROWTH

Here is a quick take on the core sector growth over last 12 financial years from FY13 to FY24. In addition, for a better comparison, we have also provided 10-month (Apr-Jan) cumulative data for last 3 fiscal years. Let us first look at the 10-month cumulative data for FY25. The cumulative core sector growth for FY25 till date picked up 20 bps to 4.40%, which is robust, but subdued compared to 8.3% and 7.8% in the comparable period in FY24 and FY23. If one looks at the average core sector growth of the 12 previous full fiscal years, it stands at 4.0%.

However, if the exceptional COVID year is removed, then the average stands at 4.9%. With the latest core sector figure at 4.59%, it looks like capex is finally making a comeback. The only concern is that the latest Q3-GDP data still shows pressure in capex and manufacturing. Hopefully, Q4 data should be more favourable.