India’s Industrial Production (IIP) growth has fallen sharply from its FY08 8.5% levels, and is flat over Jan-Feb 09, it is holding up substantially better than peers.
Higher inventory levels should suggest increased corporate borrowing. Another 18 year analysis suggests: Bank credit growth precedes/rises with inventory expansion – credit growth is currently falling, Bank credit growth more a reflection of IP than inventory
levels, and Credit growth currently falling – in-spite of substituting off-shore funding, suggesting working capital credit possibly even lower.
The real picture will emerge post March year-end releases, but we believe IP growth does not camouflage an even weaker demand environment if inventories were building up.