The news about Industrial production index has an immediate impact on the stock markets. Let us try to understand the term and the significance on the stock prices of related shares.

Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of GDP (Gross Domestic Product), they are highly sensitive to interest rates and consumer demand. This makes Industrial Production an important tool for forecasting future GDP and economic performance. Industrial Production figures are also used by central banks to measure inflation, as high levels of industrial production can lead to uncontrolled levels of consumption and rapid inflation.

The Index for Industrial Production  (IIP) is an economic indicator which measures real production output, which includes manufacturing, mining, and utilities. Production indexes are computed mainly as fisher indexes with the weights based on annual estimates of value added.

The Indian Industrial production remained weak in August

The main points of the latest update is as follows:

• Industrial production (IP) growth remained weak at 4.0% y-o-y in August, below expectations , following upwardly-revised 3.8% in July.
• Weak growth was due to a moderation in growth in consumer and basic goods output.
• Nomura Research expects IP growth to remain muted for the next six months FY12 on high interest rates and elevated inflation.

Sector data show that manufacturing output growth rose slightly to 4.5% y-o-y in August from 3.1% in July . Growth in basic metals, fabricated metal products, refined petroleum products and nuclear fuel and other transport equipments categories remained strong. By contrast output in textiles, wearing apparel, machinery and equipment categories continued to be weak.

Looking ahead, Nomura Research expects capital goods production to gain some momentum in the next few months because of a steady credit flow to the infrastructure sector and steady external commercial borrowing for capital expenditures in the last few months. However, consumer goods output growth is likely to remain lackluster. Loan growth deployed by commercial banks for consumer durables dropped in September while continued weakness in growth of intermediate goods in August suggests sluggish final goods output in the coming months. External demand for Indian merchandise may also weaken in the next few months as new exports order component of manufacturing PMI recorded below-50 level for the third consecutive month in September. Thus, we continue to expect industrial production to remain muted for the rest of FY12.

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