Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IIP: Conflicting views - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 14, 2008

    IIP: Conflicting views

    Last Friday, the IIP growth number announced for the month of August caused much disappointment to financial markets and industry analysts who were awaiting some signal of positive growth. The August IIP growth was a meager 1.3%, pulling down the year till date IIP growth to 4.9%. Infact, in the year till date, every time the IIP numbers have been declared we have seen its negative impact on the markets.

    What is IIP?
    IIP is an abstract number, which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time. It is a statistical device, which enables us to arrive at a single representative figure to measure the general level of industrial activity in the economy. However it is a short-term indicator of industrial growth.

    In simple terms, this figure enables us to know the growth of various sectors in the economy. The Indian IIP is broadly divided into three segments - manufacturing (79.36% weightage), mining & quarrying (10.47%) and electricity (10.17%).

    What the numbers say…
    If we were to go by the data published in the past few months, we are seeing a slowdown in industrial growth. The manufacturing and electricity segments have recorded poor numbers for the month, growing by 1.1% and 0.8% respectively. This comes in complete contrast when one compares it to last year's growth figures of 10.8% and 9.2% respectively. The mining and quarrying sector recorded a 4% growth as compared to last year's growth of 14.7%.

  • Also read - Opportunities in infrastructure

    But, here comes the twist
    CMIE was the authorised agency to collect the monthly production and weekly price data from individual units and organisations. In November 2007, its five-year contract with the department of industrial policy and promotion (DIPP) ended due to certain issues.

    In its latest release, the Centre for Monitoring Indian Economy (CMIE) has contradicted this data completely. The agency believes that the IIP numbers are not appropriately captured.

    A quote from the latest release describes this aptly - "Financial results of 2,144 listed manufacturing companies show a 33.9 per cent rise in aggregate net sales in the June 2008 quarter. After deflating the sales growth by the WPI inflation numbers, we get a real growth of 22.6 per cent in the sales of the manufacturing sector. This is much higher than the 5.6 per cent growth in production depicted by the IIP in the June 2008 quarter. Considering the large sample of companies for which sales data is available and the wide difference in the growth numbers of their real sales and the corresponding IIP, we conclude that the current industrial growth depicted by the IIP is a gross under-estimate."

    The agency believes that the IIP figures have become less reliable due to the quality of data used in construction of the index. The response rates (from the industry) have also fallen dramatically. This has compounded the problems of IIP's old weights and methodology.

    CMIE has compared the real sales figures of the manufacturing sector with the IIP numbers released. It believes that these differences in figures have been going on for a while.

    Historical data of manufacturing companies
    Month % change in real sales % change in IIP Difference
    Jun-05 11.6 11.3 0.3
    Sep-05 17.0 7.8 9.2
    Dec-05 11.3 8.1 3.2
    Mar-06 17.1 9.6 7.5
    Jun-06 25.7 11.7 14.0
    Sep-06 23.6 13.0 10.6
    Dec-06 18.5 11.8 6.7
    Mar-07 12.3 13.5 -1.2
    Jun-07 8.3 11.1 -2.8
    Sep-07 3.9 8.9 -5.0
    Dec-07 11.4 8.9 2.5
    Mar-08 16.2 7.3 8.9
    Jun-08 22.6 5.6 17.0
    Source: CMIE

    As can be seen from the above table, there is a significant un-reconciled difference in the data collection and computation of the CMIE and the DIPP. While the DIPP has been struggling in data collection for a while due to staff issues, the quality of data assessment has also been suffering. It is believed that the Prime Minister has also lamented the poor quality of official government data. With CMIE having larger experience in terms of data collection, its remarks cannot be ruled out completely.



    Equitymaster requests your view! Post a comment on "IIP: Conflicting views". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms