The MoSPI – (Ministry of Statistics and Programme Implementation) releases an Index of Industrial Production (IIP). The index traces the growth rate of all the industrial activity taking place in a given time interval.
How Index of Industrial Production data can impact the equity market?
The IIP data can have a direct impact on the Equity market. Positive growth in the IIP numbers signifies more economic activity. The production increases with rising demand, therefore we can conclude that the overall demand for goods in the market has increased. As a result, the falling numbers in the data bear a negative correlation of highlighting the weakness in the demand side.
The Index of Industrial Production (IIP) is a quantitative index representing the volume of activity in numbers. The base year for IIP is 2011-2012. You can read more about the Index of Industrial Production by clicking on the link. Finally, the MoSPI is the nodal agency for taking decisions for shifting the base year.
Index of Core Industries – ICI
Firstly, the Index of Core Industries is a subset of IIP because the eight Core Industries comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). Let us take a look at the weightage of eight core industries in the IIP. Secondly, this is perplexing that the Ministry of Commerce and Industries releases ICI – Index of Core Industries. Because IIP is released by MoSPI and a subset of it which is ICI is released by MoCI creating a replication of work.
Impact of ICI on Equities
ICI = 40.27% of IIP. The Refinery Products 28.037%, Steel 17.916% and Electricity 19.853% hold the highest weightage in ICI.
Firstly, India is one of the major crude oil-importing countries. Secondly, due to such a huge amount of oil import, India has developed a state of the art technology for refining crude oil. Private players as well as government companies are into the business of refining oil and selling their derivatives. The following are the list of companies that are directly in the business of refining.
- Reliance Industries
- Indian Oil Corporation
- Oil and Natural Gas Corporation
- Bharat Petroleum Corporation of India
- Hindustan Petroleum Corporation of India
Index of Industrial Production IIP’s impact on Steel sector shares
There are close to 100 companies in the steel sector on the website of Money Control. Below is the list of some of the large-cap companies from the steel sector.
- Tata Steel
- Jindal Steel
- JSW Steel
- Steel Authority of India Limited
- Jindal Stainless
Firstly, the focus of the Indian government is on self-reliance in the energy sector by using non-conventional sources like renewable energy. There are many companies that are producing electricity in India. Some of them are given below.
- Tata Power
- JSW Energy
- Nation Theramal Power Corporation
- National Hydro Power Corporation
- Adani Power
A lot of people might think that studying this data and then correlating it will result in a lot of work. Technical analysis and ratio checks can certainly reduce our efforts. However, this is only partially true.
In order to understand our investments first, we need to establish the outer circle that is macro-economic factors. Then only we can look at the specifics of the company in which we are invested. Hence these two indices are representative of the problems that are beyond anyone’s control i.e macro-economic.
Firstly, the government has been empowered to provide, collect and broadcast this data to everyone including the government itself at the same time. This ensures that all have access to data at the same time. Finally, to add value to our decisions we must always back them with data from authentic sources. The CSO – “Central Statistics Office” under the MoSPI is the central source of our data.
How to use IIP and ICI data?
Now, all comes down to this, everything is fine but how to use this data? To answer this simple question. Suppose you buy a stock or share from the Index companies like for example, Reliance Industries for a span of 3 months as a positional trade.
Now if the data in IIP and ICI for Refinery Products shows an uptrend bingo! we can hold the position or technically speaking stay long on the stock.