Momentum fails to hold on

Back in September, when core sector growth touched -0.1%, it looked like a time for celebration because pre-COVID levels of infrastructure output had been achieved finally. However, core sector contraction widened to -0.9% in Oct-20 and further to -2.6% in Nov-20. This is a tad disappointing because November marks the ninth consecutive month in which the core sector growth has been in negative territory. It is material as the core sector accounts for 40.27% of the overall IIP basket. Hence it also has a significant bearing on GDP growth. 

Star sectors faltered in Nov-20

Some of the key segments of the core sector like fertilizers, electricity and coal production have been in positive for the last few months. However, in Nov-20 we saw the momentum of all these sectors falter by about 400-600 basis points. In addition, a critical sector like cement dipped into negative growth during the month, even as steel continues to show negative growth. The net outcome is that the overall core sector growth has remained muted at -11.4% for the first 8 months of the fiscal; ending Nov-20. 

Data revisions favorable

When the core sector data is announced with a lag of one month, they normally publish provisional figures. These tend to get updated with a lag of 1 month and 3 months once the actual data flow comes in. In the last few months, such revisions of past data have generally been positive as far as core sector is concerned. In the month of November, the core sector growth for Aug-20 was revised upwards from -7.3% to -6.9%. At the same time, core sector growth for Oct-20 was also revised upwards from -2.5% to -0.9%. Such revisions give us hope that the core sector growth for Nov-20 could also be revised to a more favorable level; as has been the case in the past. That gives room for hope. 

Positive vibes from oil sector

If you add crude oil output, oil refinery products and natural gas; then the crude oil prices have a weightage of nearly 45% on the core sector. Brent crude prices bounced to above $50/bbl and that has worked in favor of the core sector in Nov-20. For example, the contraction in crude oil production and the refinery segment used to be deep in double digits. In both the cases, the contraction is now just about -4.5%. If oil prices stay around $50/bbl, we could see crude and refinery products pick up sharply in coming months. That could make a positive difference to core sector growth considering its weightage!