Fairval

Notes on Indian equities, sectors and economy

July IIP makes consensus look silly

Posted by fairval on September 13, 2010

The following para shows how hard it is to predict. June IIP came at around 7%, and consensus quickly became 7%.  This is an excerpt from a broking firm’s report.

July industrial production rose 13.8%, higher than our and consensus estimates (7.0%; Consensus 7.5%). Similar to last month, where incidentally the numbers were revised down from 7.1% to 5.8%, we were expecting single-digit growth in July due to the fading of the base effect. (A quick re-cap, industrial growth which had averaged 0.9% during Oct08-May09 picked up in Jun09 with growth during Jun09-Mar10 averaging 12.1%).

Also, the government data has to be taken with a pinch of salt. The July IIP is principally high due to a sharp 63% jump in capital goods production. Now 63% is steep. Orderbooks of cap goods companies have been going up for the last 2 quarters, but that sharp jump in production? hard to believe.

My own view wasnt too different. I thot IIP should be staying under 10% for the same reason as stated below. Also, with such a high inflation, I am finding it hard to believe final consumer demand can grow at > 10%. Can capex cycle be so strong as to keep IIP above 10% on its own? out of my depth on that one

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