Dec-24 core sector holds steady at 3.97%, as cement growth tapers

CORE SECTOR SUSTAINS GROWTH FOR FOURTH SUCCESSIVE MONTH

The -1.45% contraction in the core sector in August, now looks like a distant memory. The last 4 months have seen a progressive revival. The core sector growth has steadily gained momentum since. After contracting -1.45% in August, the core sector growth jumped to 2.44% in September, 3.71% in October, 4.39% in November, and 3.97% in December 2024. It now looks like the August contraction was more an aberration. What about revisions. September core sector final revision saw a minor downgrade of 7 bps from 2.44% to 2.37%. However, the first revision for November was positive by 13 bps from 4.26% to 4.39%.

CORE SECTOR LEADERS AND LAGGARDS IN DECEMBER 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 December 2024, these 3 sectors gave positive returns with refinery products expanding 2.83%, electricity expanding 5.07%, and steel expanding 5.13%. Incidentally, the core sector basket has 40.27% weight in the IIP basket, so there is a multiplier effect on GDP too.

For December 2024, the expanding core sectors outnumbered the contracting core sectors by a ratio of 7:1. The 7 sectors that showed positive core sector growth in December 2024 included; Coal at 5.29%, Steel at 5.13%, Electricity at 5.07%, Cement at 4.01%, refinery products at 2.93%, fertilizers at 1.67%, and crude oil at 0.65%. The only contracting sector was natural gas oil at -1.76%; which has a weight of just 6.9% in the core sector basket.

BREAKING DOWN THE DECEMBER 2024 CORE SECTOR GROWTH

The table captures the breakdown of the +3.94% core sector growth for December 2024 into the 8 components.

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 saw negative output more on account of routine issues. Coal and electricity have again gained on the strength on robust power demand, growing above 5% once again. The positive surprises have been steel. While cement tapered compared to November 2024, the surprise factor was the positive turnaround in crude oil production in December 2024.

HIGH FREQUENCY CORE SECTOR GROWTH (DECEMBER 2024)

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

Data Source: DPIIT (# FY25 is 9-months data)

After being in the negative for several months in a row, the core sector has seen positive MOM growth of +6.75% in December 2024. What is surprising is that there was positive MOM growth across all the 8 sectors. A sharp turnaround in the high frequency growth numbers is normally a positive lead indicator for long term growth data. That is good news for the core sector numbers in the coming months.

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 9-month (Apr-Dec) cumulative data for last 3 fiscal years. Let us first look at the 9 months cumulative data for FY25. The cumulative core sector growth for FY25 till date stands at 4.20%, which is relatively subdued compared to 8.3% 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%. With the latest core sector figure at 3.97%, the recent budget should hopefully give a fillip to capex.

WILL BUDGET 2025-26 MAKE A DIFFERENCE?

One of the pillars of the Union Budget 2025-26 announced on February 01, 2025 was the dual focus on boosting consumption on one side and boosting capex on the other. If we look at the capex for the first 9 months of FY24 and extrapolate the balance capex for the next 15 months, then the average monthly capex for FY26 could be around 22% higher than the FY25 period (9-month) period. That is the reason markets are optimistic that capex could once again be the big story of the coming months. That is good news for core sector story!