No Reason To Mourn India's December IIP Data

Includes: IFN, IIF
by: Wisdomsmith

India's media mourned the December 06 IIP data. An Indian daily newspaper reports:

The growth in Index of Industrial Production (IIP) saw a sharp fall to 11.1% in Dec'06 compared to the previous month. IIP 'peaked' at 14.4% in Nov'06.

This stance displays two wrong notions.

First the word 'peaked'. Has someone seen the future? IIP is still in an uptrend, so to use the worked 'peaked' is a little out of place here.

Second, we in India have a tendency to believe official data. November IIP data was clearly wrong. The December data is more like it. And it is actually quite good.


You can't use month to month data to analyze whats going on in IIP, because there is simply too much noise in monthly data. The chart above uses a 12 month rolling average to show whats really going on in IIP. As it shows, the chart is still going up. In fact, the 12 month rolling average is now 9.9%.

The 12 month average should cross 10% when January 07 data comes out. If that happens, IIP would have crossed 10% for the first time since October 1996, more than 10 years ago.

So there is no reason to mourn; this is the time to celebrate! As I have maintained in recent weeks, India's manufacturing is still accelerating. In the 1994-96 kind of boom, IIP's 12-month rolling average crossed 13%. We are far away from that currently. With capex boom yet to pick up, and too many supply shortages, there is clearly scope for manufacturing to accelerate further.

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Tagged: , Closed-End Fund - Foreign, India
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