IIP

India’s Index of Industrial production grew by 0.5% in July, a sharp climb-down from the earlier peaks of 5% in May 2014 and 3.40% in June 2014. However, if we were to look at the growth figure for the last 4 months (April to July 2014), IIP has grown by 3.3% against a contraction of 0.1% in the same period of 2013-14. Index of Industrial Production (IIP) is one of the key indicators of the industrial activity in a country. IIP index is composed of 3 broad heads with manufacturing sector having the highest weightage of 79% followed by Mining & Electricity.

Are IIP & GDP correlated? Let’s look at the sectoral break up in the GDP for the FY 2013-14. 60% is dominated by services followed by agriculture and manufacturing at 14% and 26% respectively. Hence, slowdown in the manufacturing sector need not necessarily have an adverse impact on the country’s GDP.

In the next 5 – 6 years, the working age population of our country is expected to rise from 804 million to 856 million, requiring 10 million jobs per year. The Ministry of Labour’s “Third Annual Employment & Unemployment Survey 2012-13”, published  November last year, shows that the unemployment among graduates (from the lesser known colleges) stands at 32% vs illiterate youth at a mere 3.7%, signalling lack of inclusive growth and growing economic imbalances.

The new Government at the centre is focusing on manufacturing led economic revival than big bang reforms. As per the CMIE (Centre for monitoring Indian economy), projects worth Rs 22,700 Crores were stalled in the march 2014 quarter due to delay in getting clearances from various ministries.  Environment, Power & Road ministries apart from the Project Monitoring Group in the cabinet Secretariat have been at the forefront of urgent execution. In all likelihood, the impact of the same should manifest to better IIP Growth in the next 2-3 quarters.

CPI based inflation softened marginally to 7.80% in august compared to 7.96% the previous month. The silver lining is core inflation (minus food) eased to 6.8% for the first time since 2012, providing some room to the central bank for a potential rate cut if the trend continues at least for the next 2 quarters. Debt fund investors are better placed in short duration income funds given the favourable risk return trade off.

Equity has been the darling of the market.  In the last one year NIFTY delivered an absolute return of 37% and majority of the same has come in the last 6 months led by strong FII inflows. On an YTD basis, FII’s have pumped in over 12 billion USD in the Indian stock market.

Investors should not be swayed by the near term performance but have realistic performance expectation to avoid disappointment.  The following table would give some food for thought.

Period	NIFTY
1 YEAR	37% ABSOLUTE
3 YEAR	17% CAGR
5 YEAR	11% CAGR
10 YEAR	17% CAGR

Happy investing!

Disclaimer: Views are personal.No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments, Table data as on 10th september 2014