India's industrial production index rose 0.7 percent year-on-year in September, up from a fall of 0.7 percent in August, and slightly above the consensus forecast for an increase of 0.5 percent. This is the second consecutive increase in year-on-year growth, though it remains relatively weak compared with levels seen last year.
The increase in headline year-on-year-growth in industrial production in September was largely driven by the manufacturing sector, which accounts for over three-quarters of total industrial production. Manufacturing output growth increased to 0.9 percent year-on-year from minus 0.3 percent in August. Other parts of the industrial sector also showed some improvement, with year-on-year output growth increasing from minus 5.6 percent in August to minus 3.1 percent in September for the mining sector and from 0.1 percent in August to 2.4 percent in September for the electricity sector. At a more detailed level, however, growth was not as broad-based as it was a month earlier - twelve out of the twenty-two industry groups covered by the report showed positive year-on-year growth in September, compared with fifteen in August.
Looking at the categories of goods produced, year-on-year growth in the production of consumer goods accelerated from 1.1 percent in August to 6.0 percent in September. Growth in capital goods rose slightly from minus 22.2 percent to minus 21.6 percent, while growth in intermediate goods weakened from 3.6 percent to 2.2 percent in September.
Although official industrial production data suggest that India's manufacturing sector is still recovering from a slowdown in late 2015, the increase in year-on-year growth in both August and September is broadly consistent with recent PMI surveys showing improved conditions. The headline index for the PMI manufacturing survey has increased in five of the last six months, including a sharp increase in October to its highest level since December 2014. This suggests that rate cuts delivered by the Reserve Bank of India over the last 12-18 months may be starting to provide greater support to activity in the sector.
Industrial production measures the physical output of the nation's factories, mines and utilities. Data are not seasonally adjusted and the main is on the annual growth rate of total industrial production and, within that, manufacturing output. The report is usually released around six weeks after the end of the reference month.
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.