Nov-24 core sector holds positive momentum for third month

1 Jan 2025 , 04:01 PM

CORE SECTOR BUILDS MOMENTUM FOR THIRD SUCCESSIVE MONTH

After a surprising contraction in core sector in August 2024, there has been a steady revival in the last 3 months. The core sector growth, not only bounced back into positive territory, but also The good news is that, core sector growth not only turned around into positive territory, but has steadily momentum since. For example, after contracting at -1.45% in August, the core sector growth jumped to 2.37% in September, 3.71% in October and further to 4.26% in November 2024. The persistent positive bounce in the core sector now proves that the turnaround was not a flash in the pan. August contraction was, perhaps, the exception as it came on a sharply higher base.

CORE SECTOR LEADERS AND LAGGARDS IN NOVEMBER 2024

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 the month of November 2024, all these 3 sectors gave positive returns with refinery products expanding by 2.90%, electricity expanding by 3.80%, and steel expanding by 4.78%. This helped the core sector gain further ground in November 2024. Incidentally, the core sector basket has 40.27% weight in the IIP basket, so it impacts IIP growth and GDP too.

For November 2024, the expanding core sectors outnumbered the contraction core sectors by a ratio of 6:2. The 5 sectors that showed positive core sector growth in November 2024 included; Cement at 13.04%, Coal at 7.49%, Steel at 4.78%, electricity at 3.80%, refinery products at 2.90%, and fertilizers at 2.02%. The contracting sectors were crude oil at -2.12% and natural gas at 1.94%. The contracting sectors has a combined weight of 15.9%.

BREAKING DOWN THE NOVEMBER 2024 CORE SECTOR GROWTH

The table below captures the breakdown of the +4.26% core sector growth for November 2024 into the 8 components. Out of the 8 core sectors, 6 sectors (Coal, Refinery Products, Fertilizers, Steel, Cement, and Electricity) reported positive core sector growth while the other 2 sectors (Crude oil and natural gas) reported negative core sector growth.

Months	Overall (%)	Coal (%)	Crude (%)	Natural Gas (%)	Refinery (%)	Fertilizers (%)	Steel (%)	Cement (%)	Electricity (%)
Nov-23	7.89	10.87	-0.40	7.52	12.36	3.33	9.74	-4.75	5.76
Dec-23	5.08	10.79	-1.02	6.71	4.09	5.85	8.28	3.84	1.23
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	2.37	2.64	-3.87	-1.30	5.76	1.89	1.56	7.22	0.49
Oct-24	3.71	7.76	-4.85	-1.25	5.20	0.37	5.16	3.14	1.96
Nov-24	4.26	7.49	-2.12	-1.94	2.90	2.02	4.78	13.04	3.80

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

Let us look at some of the standout performers. On the downside, crude oil and natural gas saw negative output more on account of maintenance shutdowns by refineries and due to policy related issues. Coal and electricity have again gained on the strength on robust power demand. The positive surprises have been cement and steel, which have picked momentum in the recent months due to the construction activity reviving post-monsoons.

HIGH FREQUENCY CORE SECTOR GROWTH (NOVEMBER 2024)

The yoy growth captures point-to-point growth quite effectively, but misses out on high frequency trends. These are short term trends, that eventually set the tone for the long erm trend. Also, the yoy growth is too sensitive to the base effect. Here is the high frequency MOM data; which captures the high frequency data more powerfully

Core Sector Component	Weight	Nov-24 (YOY) %	Nov-24 (MOM) %	FY25 Cumulative (%) #
Coal	10.3335	+7.49%	+7.31%	+6.36%
Crude Oil	8.9833	-2.12%	-0.94%	-2.42%
Natural Gas	6.8768	-1.94%	-4.54%	+1.05%
Refinery Products	28.0376	+2.90%	+2.14%	+2.73%
Fertilizers	2.6276	+2.02%	-0.51%	+1.60%
Steel	17.9166	+4.78%	-4.72%	+5.93%
Cement	5.3720	+13.04%	-5.50%	+3.12%
Electricity	19.8530	+3.80%	-11.93%	+5.26%
Core Sector Growth	100.0000	+4.26%	-3.33%	+4.21%

Data Source: DPIIT (# FY25 is 8-months data)

There has been enough discussion on the November 2024 yoy core sector growth for FY25. Hence we will focus more on the MOM high frequency growth in core sector. In recent months, the MOM core sector growth has been consistently negative, reflecting the pressure on the core sector growth in the short term. The overall MOM core sector growth contracted by -3.33%. Out of the 8 core sectors, 6 sectors showed negative growth; including crude oil, natural gas, fertilizers, steel, cement, and electricity. The only 2 core sectors to show positive MOM growth were coal and refinery products.

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 8-month (Apr-Nov) cumulative data for last 3 fiscal years. Let us first look at the 8 months cumulative data for FY25. The cumulative core sector growth for FY25 till date stands at 4.21%, which is relatively subdued compared to 8.7% and 8.1% 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%. In comparison, the latest year cumulative growth of 4.21% surely puts pressure on the government to act.

WILL THE RBI MAKE UP FOR LOWER CAPEX WITH RATE CUTS?

The RBI abstained from rate cuts in October and December. It is a valid argument that rate cuts would partially offset the impact of lower capex as it would encourage more capex from the private sector. That would also be in sync with the Fed, which has already cut rates by 100 bps. However, India has a different kind of problem. The rupee has been extremely weak and closed 2024 at an all-time low of ₹85.66/$. A rate cut at this juncture, would only weaken the rupee further, something the RBI can ill-afford. Instead, the government may prefer to be a little lenient with the fiscal deficit and push up capex spending instead!