Macroscope: An assessment of IIP for the month July 2020

What is index of industrial production data (IIP)?

IIP measures the industrial production for the period under review, usually a month against the reference period.
It is a key indicator of the manufacturing sector of the economy.

Its “economy based” weighted components are as follows:

Its “use-based” weighted components are as follows:

What does IIP data mean for Financial Markets?

It serves as an indicator of corporate earnings, thereby, influencing equity & debt investors, alike. It is also a good parameter to understand the industrial activity in the country.

IIP Reading – July 2020

What is the latest reading?

The IIP growth contracted by -10.4% in July 2020 compared to -16.6% in June 2020 and +4.9% in July 2019.

Contraction in IIP has moderated on the back of partial resumption of activities in June 2020 post unlock 1.0.

Growth in sectoral & use-based classification

“It may not be appropriate to compare the IIP in the post-pandemic months with the IIP for months preceding the pandemic”, reads the statement.
India’s industrial output contracted for the 5th consecutive month in July, because of fall in production of consumer durables and capital goods, indicating continuing stress In discretionary consumption and investments.

Consumer non-durables continued to be only category posting +ve growth, but at half of growth rate realised in June 2020, thus highlighting inventory hurdles. Despite continued improvements.

Investor Takeaway

Sharp recovery seen in May and June seems to be losing steam, even though there is consistent decline in pace of contraction. To curb near-term pains will require more political and economic firepower through sustained and developing-with-times policy supports.

The adversity is here to stay for short-term, as the viral virus continues to spread an air of uncertainty across the country’s socio-economic factions. Moderation in IIP will only be seen on expedited adaption of the new normal in consumption and production factors. In all, we think that industrial output will remain below the pre-virus level for at least a few more months, and below its pre-virus trend for several years.

Click here If you want to read the complete IIP press release.