Aug, 15, 2013 By Vikram Murarka 0 comments
Indian IIP data for Nov-14 (+3.8% y/y) was released on 12-Jan-15. It has moved up smartly from the -4.2%. growth for Oct-14. But is that unequivocal good news? This report looks at the Indian IIP growth from a couple of other perspectives.
See boxes (1) and (2) in the chart alongside. For the last three years, the IIP Index has been ranging sideways between 194-163 and the annual growth rate between +6% and -4%, largely. Is this growth or stagnation?
The Index needs to rise past (3) or 180 at least if the growth rate is to move up to 5.9% at least. But (4) suggests there is trend resistance near the current levels
Further, we have to ask, even if the Industrial growth rate rises to 5.9%, is that good enough, given that India is looking to grow GDP itself at 5.9%? Industry probably needs to grow at least 8-10% if GDP growth is to move up to 5.9%. Recall, industrial growth was averaging 15-20% around 2007-08 when GDP was growing around 9%.
The chart alongside compares the industrial growth rate in India with that in the USA.
As can be seen, US grew 5.25% in Nov-14 as compared to India's growth of 3.8%.
Further, the USA has pulled itself out of the financial crisis and growth has not dipped below even 1% since 2010. Indian industrial growth, on the other hand, has been vacillating around the 0% level since 2011.
Seen on the same scale, (1) India averaged 15-20% in 2007-08, far outpacing the US growth of around 2% at that time. (2) But, Indian growth has been trending down since then whereas (3) US growth has been trending up.
Given that the US Industrial base is around 6 times that of India's, growth in India will have to be at least 6 times more than the US growth rate for India to attract huge amounts of capital.
From a domestic perspective, Indian Equities have gone up through 2014 on the hope and belief that the new Modi-government will be able to pull India out of its economic morass. While that is still a hope an belief, we have to see what rate of Industrial growth is already priced into the current level of the Sensex/ Nifty.
We would assume that the Equity market is pricing in around 10% industrial growth. Unless the IIP picks up strongly in the next few months, the markets could start coming off.
On the other hand, if the IIP does indeed rise past 6% in the next few months, Equities could shoot up.
But, while the market has moved up on hope so far, further rise from here will have to be backed by performance. That could be a tall order, going by what the numbers suggest at the moment and considering the growth slowdown dogging the global economy.
Forex reports by KSHITIJ.COM are based on dedicated and in depth analysis of various economic and financial parameters. Hence the judgement, quality, probability and reliability of these forex risk management views are quite high.
We are privileged to be associated with Kshitij as our Forex Advisor. Their valuable advice has helped Marico to redefine its forex management policies. We look forward to a long and rewarding association with them.
Kshitij is the only advisor that has taken a firm stand on the market at various times and at the same time they have always been willing to accept their mistakes gracefully.
Need Euro, Yen and Aussie forecasts for business costing and planning your hedges? You may also be interested in other long term forecasts
Right in the beginning of 2017 we had called for a new Bull Market in industrial metals. This view is working well. Download August’17 Wallpaper
Our Aug-17 Monthly forecast is now available. To order a PAID copy, please click here and take a trial of our service.