Eyes on August IIP data today after moderate recovery in July

Expectations not high but low base of previous year could give it a push

After a slight rise in the Index of Industrial Production (IIP) in July following two months of straight contraction, IIP data for August will be released later today. No one expects too high a recovery for August, but low base of previous year could give it a bit of push.

Dun and Bradstreet, in its report, stated that it expects the IIP growth to remain 1-2% in August due to low demand, high interest rates and poor investment sentiments.

Meanwhile, Moody's Analytics, the research wing of Moody's Group, said that the industrial output would grow by a meagre 1% in August this year.

Demand is still weak and the supply side remains constrained by weak infrastructure and complicated taxes and regulations, it said. “Industrial output will not recover until confidence returns", the firm said.

In July, the industrial output expanded at a four-month high of 2.6%, driven by sharp rise in capital goods output. Capital goods boosted the IIP to the extent of 1.6%.

As the other sectors showed lacklustre performance, the experts said that it is difficult to term it as a revival.

Particularly, worrying segment was the extent to which the consumer durables fell. These plunged 9.3% in July against 0.8% growth in June. Experts predicted a muted growth in this segment till October, when the festive season sets in.

However, IIP in July was a bit of relief as there was an uptick after two straight months of contraction. In the first four months of the current financial year, IIP contracted in May and June and rose in April, August to yield cumulative contraction of 0.2%. It would be interesting to see if cumulative production could grow in the first five months.  

Low base of last year would give some kind of boost to August IIP data this time. The index fell to 164.7 points in August 2012 from 167.1 points in July 2012. In July 2013, the index has already reached 171.5 points. Hence, even if the index remains the same as in July, the IIP could see a growth of 4.12% in August.

A Reuters poll of 28 economists has estimated a 2% rise in factory production in August.

Also, the eight infrastructure industries grew at a seven-month high of 3.7% in July. This accounts for roughly 38% of the IIP

Meanwhile, manufacturing contracted in August for the first time in four years, according to Purchasing Managers' Index (PMI). Manufacturing constitutes 75% of IIP. PMI and IIP do not always correspond one-to-one as PMI is just a broad indicator and calculated month-on-month against year-on-year calculation in IIP.