Abstract:
This study attempts to explore the impact of Industrial Production Index to sector performance of Beverage, Food and Tobacco in
Colombo Stock Exchange Sri Lanka. Secondary data were used for the analysis. Sector index was taken from the Data Library of
Colombo Stock Exchange and Industrial Production Index was taken from Annual Reports of Central Bank Sri Lanka. Monthly
data were gathered from January 2002 to December 2014. For the time series data set, first, the stationary was checked using
Augmented Dickey-Fuller and Phillips Perron Tests of E-views software. The results of stationary check show that the sector
index is stationary at 1st difference in both ADF and PP tests. Industrial Production Index is stationary at 2nd difference in ADF
test but 1st difference is stationary in PP test. Because of the seasonal trend in IPI 12th difference also considered and it is
stationary in both ADF and PP tests. Granger Causality test was used to find out the causal relationship between variables.
Results show the one way causality that the changes occurring in IPI will have an effect on changes in sector index. But changes
in sector index will not have any effect on changes in IPI. Finally a regression was used to find out the relationship between
variables. A Pearson Correlation coefficient was checked to find the correlation among variables before moving to the regression.
Result of correlation test shows 84% higher correlation between variables and regression result shows a significant positive
relationship amongvariables. The study concludes that Industrial Production Index will positively impact on Beverage, Food and
Tobacco sector Index in Sri Lanka. It can be recommended that the changes occurring in the IPI be considered by Investors when
they buy and sell stocks in BFT sector.
