Dec 13, 2000|
IIP: Revival ahead?
The headline growth in the Index of Industrial Production (IIP) touched 6.6% in October 2000. The growth recorded is the highest during the current fiscal year (but much lower when compared to October 1999). The rise in IIP growth, driven by the electricity and mining groups, comes on the back of a rise in industrial activity in September.
Even as the headline IIP growth has shown an improvement, there are several reasons why the skepticism will persist. First, the manufacturing sector posted moderate growth of 5.6%, which, though comparable with earlier months this year, is much lower than the corresponding period last year (9.4%). Second, investment activity remains sluggish indicating that business confidence in a revival is low. As a result, both consumption and investment activity remain subdued. Third, a part of the increase in IIP growth can be attributed to the year on year effect in case of the mining group. The group had actually posted a decline of 1.9% in October 1999. A lower base has enabled the mining group to post a growth of 10.3%.
Indian industry has been faced with several challenges so far this year. First ofcourse was the sharp rise in crude oil prices. This impacted demand and limited the ability of companies to pass on the hike in costs to consumers. Consequently, companies were faced with an environment of slowing demand and declining profitability. Then came the drought in several western states followed by floods in the East. All these factors took a toll on demand and this is clearly evident from the sharp decline in IIP growth.
Nevertheless, the rise in IIP growth over two successive months (September and October) is something that cannot be totally ignored. For one, the rise comes after a sustained decline in IIP growth, from a high of 12.6% in February to a fraction below 5% in July and August. Another factor that could be pushing growth is the surge in exports, which have been growing at brisk rates of over 20%. However, the growth in IIP will gain credibility only when the trend were to sustain in the coming months.
Letís look at several factors that will determine the course of the industry in the coming year. First will be whether or not the excellent performance on the exports front is sustained. Second, one needs to keep an eye on crude prices. Any surge could snip a possible recovery while a decline could boost demand and profitability. Third, and one of the most important factors, will be the performance on the agriculture front. It would be correct to say that if agricultural production booms, industry will respond. On the other hand we may face a situation similar to this year when demand turned sluggish. Finally, the threat of cheap imports will continue to pose a challenge for the domestic industry, especially after quantitative restrictions are completely withdrawn early next year.
Surely, growth or no growth, Indian industry is poised for interesting times in the coming year.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407