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Index Of Industrial Production V/S Stock Market

First of all this is important to understand that what is IIP:- So The Index of Industrial Production (IIP) measures short-term changes in industrial activity in the country. The first attempt to compile IIP in India was made by the office of economic adviser in the ministry of commerce and industry with base year 1937 covering 15 items of which 13 were from manufacturing and the rest from mining and electricity. This is an economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100.The data is released on a monthly basis since 1950 and the Central Statistical Organization (CSO) compiles it since its establishment in 1951. The base year has been revised seven times by the CSO from its first base of 1946; the latest is 2004-05.

So IIP directly affect to stock market. The reduced consumer spending leads to lower demand situation. The producers respond by cutting down on the production. Low industrial production results in lower corporate sales and profits, which directly affects stock prices. So a direct impact of weak IIP data is a sudden fall in stock prices. You need to check the reason behind the increase/decrease in IIP figures before investing. Though IIP does indicate the condition of the country's economy, it should not be taken as the sole basis for investment. This is because some sectors may show higher performance as compared to others. This was evident in the recent past when realty sector showed higher performance, pharma sector lagged behind. The items in the index are given different weights according to their relevance and this is revised from time to time along with the base year in order to reflect the changing nature of the economy. The data is released on a monthly basis. The variation is gauged year-on-year. For example, growth in index for April 2012 will be based on the index value for April 2011.

Index of Industrial Production (IIP) has grown marginally at 0.1% in July compared to negative 1.8% in the month-ago period. Basically not much growth has happened in April, May, June and July. Poor show by manufacturing, mining and capital goods sectors, reflecting weak economic activity add to the woes of IIP pressure. The manufacturing sector, which constitutes over 75% of the index, witnessed a contraction in output by 0.2% in July, as against growth of 3.1% in the same month last year. The performance of the manufacturing sector in April-July was poor as output contracted by 0.6%, as against a growth of 6.5% in the four-month period of last year.

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