Industrial Production Index...
7:46 PMHere are some of the definitions of Index of Industrial Production .... and it's use in determining the business cycle. IIP is extremely important in when you are in or investing in commodity business because it's extremely important in determining the business cycle trend . Although I don't hold any commodity stocks (now) but still analyzing companies related to commodity driven stock has paid me one good lesson " Never pay for growth of commodity driven companies, they create extremely random events and can give you sleepless nights because most of the commodity companies fate is related to the price of the commodity (Raw material) they are using and it's very hard for even the shrewdest investors to time the prices of these commodities.
Now some definitions of IIP I found on internet and I’m pasting here….Hope they help me in future :--( Note : Treat IIP just like any other stock market indices whose base here is 100)
In Investopedia:--
Industrial Production Index - IPI
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.
Production data is often received directly from the Bureau of Labor Statistics and trade associations, both on physical output and inputs used in the production process. Each individual index is calculated using the Fischer index formula.Investors can use the IPI of various industries to examine the growth in the respective industry. If the IPI is growing month-over-month for a particular industry, this is a sign that the companies in the industry are performing well.
In WIKI:-
The Industrial Production Index (IPI) is an economic indicator which measures real production output. It is expressed as a percentage of real output with base year currently at 2002. Production indexes are computed mainly as fisher indexes with the weights based on annual estimates of value added. This index, along with other industrial indexes and construction, accounts for the bulk of the variation in national output over the duration of the business cycle.
http://www.forecasts.org/index.htm :- This link will provide you with the current trends and forecasts.
http://mospi.gov.in/welcome.asp : This is the Ministry of statistics and Program Implementation web site browse it for monthly IIP data of various sectors.
I think this much detail is enough for IIP which is nothing but a trend and trends can be misleading sometimes so be careful and invest in businesses with proper business analysis . This is a thought straight from Buffet and it very important and I’ll advice you to apply not in stock market but in any investment you make. I can see so many people are investing in LICs and ULIPs without understanding the details of the policies and they end up filling pockets of the asset management company and the Insurance agents. There is an interesting story which I got from Mr. Sanjay Bakshi’s blog (BFBV course) :-
1) 1 burger = Rs 10
2) You have 100 Rupees then you can have 10 such burgers.
3) Now let’s assume instead of buying burger you think that time has come you should invest some money. So you invested Rs 100 instead of buying burger.
4) Now let’s say after one year you made 112(including principal) which is infact a 12% return. Now your burger man thought of increasing the price of the burger as raw materials(like onion and tomato and potato) are costly now and his calculation make the price of the burger to be Rs 12.
5) You went to your burger man to buy burger from your return and burger from your principal for your family.
6) Well he will say “Sir Commodities are costly and so we have increased the price of the burger to Rs 12 ”. Confounded you bought the burgers (10 burgers) and came back. You gave some thought about what just happened to you and you found that your IRR was zero and you had never thought about the return which you need to get to buy some extra burgers from your return.
Well average compounded annual growth rate of Indian market is between 16-17 %( Think about reversion of the mean). In my view if you can’t give time for research and reading then stick to index fund. Well this is from Benjamin Graham and it’s really true. I validate most of the best funds ,yes using ww.moneycontrol.com , and found that maximum number of funds are finding difficult to beat or even meet the market. Instead of that people are constantly investing in those funds giving 2.5% of there hard earned money. Some times these funds also charge exit load. But just check the Entry load of the Index fund (Which you can easily buy from you www.icicidirect.com (all the funds) ,it just 1% with no entry load . I never made an investment in one but for people who are locking there money in FD or bonds, GO FOR INDEX FUND!
[Note: My Thoughts are only for my tutorial purpose. I read and search a lot of interesting material and put in my blog.For anyone disagreeing with my thoughts, I would like him to leave a comment or mail me at ashutosh.nigam37@gmail.com . I love arguing about stuff and will love to talk to people who are pointing out errors in my writings. ]
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