Moneycontrol Pro Panorama | The tyranny and tricks of outlooks

One of the biggest was the deluge of dollars expected in the bond market after index inclusion.

December is the month where we find our inboxes filling up with outlooks for the new year. Predictions, from the trying-too-hard-to-be-realistic to the absolutely fantastic have begun to land in our mailboxes.

But here is a question. How many of the predictions made about 2025 in December 2024 have come true? In fact, do you remember the forecasts for 2025 that were made in December 2024? Let’s jog our memory.

Central bank watchers predicted that the US Federal Reserve’s Fed funds rate would come down to 3.50-4 percent and some more optimistic predictions were for 3.25-3.5 percent. Economists predicted that the global economy would see a sharp deceleration in growth, and the redrawing of trade dynamics between countries triggered by America’s tariff policy would result in inflation flaring up in pockets.

Most of these predictions have come to be. After three consecutive cuts, the Fed funds rate now stands at 3.50-3.75 percent which is not far from forecasts. America has perhaps paid dearly for imposing tariffs on trading partners as inflation in the US has become uncomfortable. Global growth is feeling the pressure of geopolitical events and price pressures are visible in most advanced nations.

Does this mean that predictions must be taken seriously? After all, these are claimed to be arrived at by careful excel sheet calculations, and maths never disappoints. For those with faith, you only need to look at predictions for asset classes to lose it.

Market analysts predicted that gold would shine less this year because US exceptionalism would mean the need to hedge would be lower and the dollar would reign supreme. Gold has roared for another year even though the US currency hasn’t buckled much.

But the predictions for Artificial Intelligence (AI) were nowhere close to reality. Granted, many marquee investors foresaw that AI would drive investments and returns in equities as well. But even the most sanguine investor didn’t foresee Nvidia’s rise and the mad rush for AI stocks. Such has been the frenzy that now even AI evangelists are wary of a bubble. Howard Marks has already called it and many are just waiting for the bubble to burst and simultaneously hoping that it does not happen in their corner of the market.

For India, the predictions have been more misses than hits. One of the biggest was the deluge of dollars expected in the bond market after index inclusion. Our Rajju Bhayya: Architect of RSS's growth and ideological expansion shows how this unravelled and reality is far away from what was expected. The Indian rupee was predicted to see modest depreciation, but a decline of over 5 percent to cross the psychological 90 per dollar mark was not foreseen.

That is the tyranny of outlooks. Predictions set expectations and expectations increase the odds of disappointments and feed fear.

Citigroup expects the AI trade to continue, though not at the speed it did this year. The case for US exceptionalism remains and the dollar’s hegemony is expected to continue. Predicting the Fed’s move is treacherous, given the scheduled change in leadership. Even so, economists expect at least one rate cut in 2026. Citi predicts a weaker US jobs market, but is cautious in forecasting a dovish Fed. Nomura, on the other hand, expects two cuts and a more resilient jobs market.

For India, economists expect the economy to grow at a decent clip of 6-7 percent. The Reserve Bank of India (RBI) may cut one more time. Nomura predicts the current Goldilocks period to sustain in 2026 for the country.

Does that mean the equity market will fire up more? “We expect India's relative performance vs EMs to improve in CY26, driven by improving corp (corporate) EPS growth. We also believe that the worst for INR is behind,” says Jefferies in an outlook note. Bank of America’s Amish Shah warns that capex or the lack of it would be a test for valuations. Read his full interview here to know more.

While we continue to peruse the incoming outlooks, we should remember that forecasters also have a trick to make predictions seem prophetic. Simply increase the forecasting timeline and throw in a fantastic figure. No one will question whether it is possible. Here is one: The global AI market is projected to exceed $2 trillion by 2030.

Whether these predictions will come true or not, we have one year to forget them. 

FT Person of the Year: Jensen Huang (republished from the FT)

Technical Picks: GESHIP, JSWENERGY, BPCL, VEDL