Brokerages Urge Caution On IIP Momentum As Growth Hits 25-Month High
The brokerages note the genuine improvement in breadth, but also point out the distortion from calendar effects and policy timing.
India's industrial production (IIP) data for Novemeber delivered a sharp upside surprise, rising 6.7% year-on-year. This is the fastest growth in 25 months. While the headline has boosted sentiment, brokerage firms CLSA and Nomura suggest a more nuanced picture.
They note the genuine improvement in breadth, but also point out the distortion from calendar effects and policy timing.
CLSA views the November data as a meaningful step up from recent weakness. The brokerage notes that IIP growth at 6.7% was well above market expectations of around 3%.
This was driven largely by manufacturing, which also rose to a 25-month high of 8%. Mining growth remained firm, while electricity generation showed sequential improvement after a brief drag earlier.
More importantly, CLSA flags that the recovery appears broad-based. On a use-based classification, intermediate and consumer goods accelerated sharply.
Capital goods, infrastructure, and construction also showed record sequential growth, outperforming expectations. The share of sub-industries contracting on a year-on-year basis fell to ~4%, which is a 10-month low.
That said, CLSA flags that part of the November surprise likely reflects the transitory impact of early-announced GST rate cuts, whose implementation in October may have pulled demand forward.
Still, the brokerage now expects IIP growth to remain above 4% YoY in 3QFY26, reviseable higher if momentum sustains. Full-year FY26 IIP growth is seen at ~4%, weaker than FY25 but no longer near multi-year lows.
Nomura, meanwhile, strikes a more cautious but not dismissive tone. It agrees that the November rebound was stronger than expected, especially after a Diwali-affected October with fewer working days.
On that basis, IIP growth averaged 3.6% YoY over Oct–Nov, slower than September’s 4.6%. Capital goods and infrastructure-related sectors performed better, while consumer durables and non-durables remained tepid.
Labour-intensive sectors — such as textiles, apparel and leather — continued to struggle, partly due to the impact of 50% Trump-era tariffs, while resilience was concentrated in electronics, electrical equipment and transportation, sectors benefiting from GST-led spillovers.
Nomura expects growth in 4QFY26 to be influenced by cross-currents: fading tariff headwinds, GST effects, and easing deflators that could support headline GDP. It pegs FY26 GDP growth at ~7.5%, slightly above the RBI’s estimate, and remains constructive on FY27.
