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  • Economy: IIP: Continuing to signal gradual recovery

    Publish date: 24th August, 2018


    The Index of Industrial Production (IIP) registered a five-month high of 7% in June 2018, rising from 3.93% in May. This being a sign of recovery, is still below the 7.4% IIP growth in January. Earlier this year, due to the slowdown in manufacturing, IIP growth stood at a seven month low of 3.2% in March. However, the CriSidEx, the index rose to a three-quarter high during the same period. The CriSidEx index measures the sentiment among small and micro enterprises (SMEs).

    Click here to know about the IIP growth the previous month and other economic indicators

    Reasons for the robust IIP growth

    Manufacturing which comprises more than three-fourths of the IIP grew 6.9% in June, up from 3.66% in May. This shows that there is a strong recovery in the manufacturing sector. Manufacturing contributes around one-fourth of India’s GDP. IIP registered an increase in growth in primary goods segment, capital goods, consumer durables and the infrastructure sector as well.

    Click here to read about IIP and inflation data

    Robust growth was experienced by eight core industries namely, crude oil, refinery products, coal, cement, steel, fertilizers, electricity and natural gas. These industries have a combined weight of 40.2% in the IIP. However, the Nikkei India Manufacturing Purchase Manager’s Index (PMI), fell from 53.1 in June to 52.3 in July showing that the growth rate in new orders slightly softened since June.

    Click here to read more about what economic data says

    Impact on the Securities Markets

    The SENSEX recently touched new heights last month. IIP and SENSEX movements are closely related. Though the IIP is not as volatile as the SENSEX, even a small change in the former can lead to a lot of swing in stock market movement. The industrial output gives an indication of where the economy is headed. Thus, the rise in IIP growth has been reflected in the upward movement of the SENSEX. Moreover, a rise in IIP growth means a rise in industrial output which will also help in bringing down inflation.

    With new projects coming up, there is an increase in the demand for manufacturing goods. For example, the steel industry is expected to grow with the increase in demand from infrastructure projects like Bharatmala (an NHAI initiative) and construction projects like affordable housing and port construction. Thus, the equities of industries in the manufacturing sector will rise.

    Click here to read about factors indicating economic recovery

    Conclusion

    By looking at the IIP numbers and the growth predictions, one can surely say the Indian economy is continuing to signal gradual recovery.

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