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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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