Annual growth of industrial production slowed surprisingly sharply in May. A 2.7 percent rate was 0.7 percentage points short of a significantly downwardly revised April outturn and well below the market consensus.
The deceleration in overall production was mirrored in the key manufacturing sector where output was only 2.2 percent higher on the year after an originally reported 5.1 percent spurt last time.
Looking into June the manufacturing PMI dipped to just 51.3 and, more worryingly, the survey's composite output index dropped below the 50 growth threshold for the first time since April last year. With CPI inflation (5.01 percent in May) still comfortably below its 6 percent interim target mark, another reduction in interest rate by the RBI may not be too far away. However, last month's cut was described by the central bank as front-end loading and key to any future move will be a continuation in July, a key period for crop planting, of the encouraging monsoon rainfall seen in June.
Industrial production index measures changes in the volume of production in the mining, manufacturing and electricity sectors. The data are not seasonally adjusted.
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that will not lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.
The index is a quantitative index with the production of the items being expressed in physical terms. The Index is compiled by taking into account the quantities of items produced during the current month, compared with the average monthly production in the base year. Selection of items is based on the total production of the items as the primary (main) product as well as secondary (by) product. Data are available monthly within six weeks of reference month.
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