How Diwali could shake up India's industrial production growth, Nomura explains

India's industrial production (IP) growth slowed to 6.7% year-on-year in September from 7.8% in August, but underlying sequential momentum remained largely stable, according to Nomura. The brokerage expects industrial production growth to remain volatile over the coming months because of differences in the timing of Diwali. "Underlying dynamics largely resilient. We expect Diwali-led volatility in coming months," Nomura said. September IP growth was below the consensus and Nomura's estimate of 7.2%. August growth was revised downwards to 7.8% from 8.0%. Sequential momentum eased to 0.3% month-on-month on a seasonally adjusted basis in September from 0.5% in August. Manufacturing growth remained strong at 9%, while electricity and gas production growth picked up to 12.3%. Mining production contracted 5.6% year-on-year, partly reflecting an unfavourable base. Intermediate and capital goods continued to lead growth, expanding 12.2% and 10.4%, respectively. Infrastructure and construction goods growth eased to 7.2%, while consumer durables grew 6%. Consumer non-durable goods and primary goods remained relatively weak, growing 1.4% and 4%, respectively. What is driving industrial production? Nomura said a softer reading in isolation was unlikely to be a major concern, given that industrial production growth had surprised on the upside in most months. Goods and services tax (GST) cuts introduced towards the end of September last year, along with stronger restocking ahead of the October festive season, also created a higher base for some sub-categories. The data broadly reflected strong public capital expenditure, some momentum in private investment, resilient consumer discretionary demand and robust merchandise exports. Electrical equipment production grew around 34% year-on-year despite an elevated base, potentially reflecting increasing investment in data centres. Continued strength in computer and electronics goods pointed to robust domestic and external demand. Auto and transport equipment production also remained strong, in line with healthy wholesale sales across passenger vehicles, two-wheelers and medium and heavy commercial vehicles. However, pharmaceutical, chemical and apparel exports continued to face weakness despite easing trade tensions with the US and diversification of export destinations. Nomura said stiff competition from cheaper Chinese imports could also explain some of the underperformance, although textile production remained strong. What to expect in the coming months Nomura expects industrial production growth to be affected by volatile base effects over the next couple of months. October could see strong restocking ahead of Diwali, which falls in early November this year. The brokerage noted that Diwali fell in October last year, when IP growth contracted 0.9%, creating a favourable base effect for October 2026. Consumer non-discretionary demand could remain weak because of the impact of deficient monsoons on rural sentiment. Other sectors are expected to retain underlying momentum, supported by investment, external demand and consumer durables. With the monsoon season largely over, Nomura expects mining and electricity production to pick up. It also noted that the government had shelved plans for coal imports to address power shortages amid currency pressures.