India's industrial production index rose 5.7 percent year-on-year in November after dropping 1.8 percent in October. This pick-up in growth contrasts with PMI survey data that indicated weaker conditions in November after the government announced early in the month that high-denomination currency notes would be withdrawn as legal tender, a move that prompted significant cash shortages. PMI data also indicated further weakness in business conditions in December.
The rebound in industrial production growth in November was broad-based. The manufacturing index rose 5.5 percent year-on-year in November after falling by 2.4 percent in October, with sixteen of the twenty-two industry groups classified as part of the sector recording positive output growth. The mining index also rebounded from a fall of 0.7 percent to an increase of 3.9 percent, while year-on-year growth in the electricity index accelerated from 1.1 percent to 8.9 percent
In contrast to the industrial production data, the Nikkei Manufacturing PMI survey showed a fall in its headline index from 54.4 in October to 52.3 in November, indicating a weaker expansion in output. The December survey showed a further drop in the headline index to 49.6, below the 50.0 level and indicating a contraction in the sector. Survey respondents cited cash shortages as a major factor driving weaker orders and activity. PMI surveys also showed weaker conditions in the services sector in November and December.
This discrepancy between the industrial production and PMI data suggests that the impact of cash shortages on the economy remains unclear for now. However, with inflation currently below the mid-point of the Reserve Bank of India's target range of 2.0 percent to 6.0 percent, officials may conclude that the weakness shown in PMI surveys is enough to warrant another cut in policy rates. PMI data for January will be available ahead of the Reserve Bank of India's next policy meeting in early February.
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.