Annual growth of industrial production climbed sharply and by more than expected in October. A 9.8 percent rate was a marked improvement on September's upwardly revised 3.8 percent outturn and the strongest since July 2010. However, it was boosted significantly by basis effects courtesy of a collapse in output in the year ago month. This alone probably added nearly 4 percentage points to the October rate.
Still, the latest data suggest that October was a decent month for goods producing industries, in particular the key manufacturing sector where output growth surged from 2.6 percent to some 10.6 percent. This should come as something of a relief to policymakers who must have been concerned by signs of renewed weakness in recent economic statistics.
Financial markets anticipate additional RBI easing in 2016 but the latest bounce in output should at least help to reduce pressure for an early move (the next RBI interest rate meeting is on 2nd February 2016).
However, even should the central bank want to act, a major hurdle in the path of lower borrowing costs is the rupee which, in line with most emerging market currencies, has been struggling in the face of an anticipated Fed tightening next week. Indeed, the INR was the weakest performing Asian unit in November and would have been softer still but for RBI intervention.
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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