The Reality of the IIP Data

Last week India declared its IIP numbers, the IIP for the month of April grew by an unexpected 1.4%, way above the street expectations. The people on TV were really cheering with this kind of IIP performance and even the president of FICCI Mr. Harsh Pati Singhania said “The overall IIP figures show encouraging signs of recovery and the stimulus packages may be having some impact. It is critical now to sustain this pace of recovery”.

However the reality of the IIP data is a little different which the media is trying to hide. Some the the key facts of IIP data are:

• Eleven out of seventeen industry groups showed a positive growth. (This was highlighted and indeed is encouraging)


• The industry group ‘Wood and Wood Products; Furniture and Fixtures
  ’ have shown the highest growth of 31.4%, followed by 12.6% in ‘Wool, Silk and Man-made Fibre Textiles’ and 10.2% in ‘Non-Metallic Mineral Products. Now the highest growing segment is Wood and Furniture; should this be encouraging- Definitely NOT


• the industry group ‘Food Products’ have shown maximum negative growth of 34.4% followed by 12.4% in ‘Leather and Leather & Fur Products‘ and 5.1% in ‘Other Manufacturing Industries’


• As per Use-based classification, the Sectoral growth rates in April 2009 over April 2008 are 4.6% in Basic goods, (-)1.3% in Capital goods and 7.1% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 16.9% and (-)10.4% respectively, with the overall growth in Consumer goods being (-)


• 7% negative growth in capital goods is a pointer to industry confidence that they are not keen on spending on capex and intuitively they are not seeing a rise in demand.


• Growth in intermediate goods does not tell us story till it is clear for which products these intermediate goods are used


• Growth in consumer durables may be seen as encouraging


• Along with the Quick Estimates of IIP for April 2009, the indices for March 2009 have undergone the first revision and those for January 2009 have undergone the second (final) revision in the light of the updated data received from the source agencies


• This is the best part of it. So the final figures for April 2009, shall not be known till August 2009. How much would it differ from the quick estimates is any body's guess.

Thus I believe we are far from recovery and as I mentioned in my earlier post that given the bonds yield and earnings yield theory I definitely see Sensex at around 12,000.