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Moneycontrol Pro Panorama | Through a glass, groggily

In today’s edition of Moneycontrol Pro Panorama: chief economist at IndusInd Bank offers his analysis for the year ahead, our independent research team picks up a defensive stock -- Bharat Dynamics -- and much more.

December 28, 2021 / 03:36 PM IST

Dear Reader,

As the famed baseball player Yogi Berra was supposed to have said, ‘It’s tough to make predictions, especially about the future’. It’s part of hallowed tradition to polish the crystal ball and peer into it at this time of the year, but do these forecasts really make sense? Especially when what we’re forecasting is as complex as the economy?

For answers to that question, look no further than the International Monetary Fund. The IMF presumably has some of the best and brightest forecasters on it rolls, brave souls who are not afraid of flogging their excel sheets to come up with the forecast that India’s GDP growth at constant prices in 2026 will be, hold your breath, 6.078 percent. Predicting GDP growth, that too to three decimal places, seems to be all in a day’s work for them.

But let’s look at their track record. In January this year, they forecast India’s real GDP growth for 2021 would be 11.5 percent and 6.8 percent in 2022. By October, after a deadly second wave, the forecast had been trimmed to 9.5 percent for 2021 and raised to 8.5 percent for 2022. Of course, these are exceptional times, with a dangerous virus in the air, and forecasting, always a tricky job, has been made far more uncertain.

But did the IMF have a better track record before the pandemic? Well, in January 2019 they predicted India’s real GDP growth for the year at 7.5 percent. By October 2019, that had been revised downward to 6.1 percent. It finally came in at 4 percent.

And if the IMF is so lousy at predictions, what are the odds of the brokerages getting it right? At least the IMF doesn’t do its forecasts in December, when the festive spirit tends to make everything a bit fuzzy. The phrase ‘Through a glass, darkly’ needs to be revised a bit at this time of the year.

What helps are not so much the forecasts, as the underlying reasons for them. One of the ways in which predictions can be made more analytical is to take apart the GDP into its constituents---private consumption, government consumption, private and government investment demand and the external sector-- and examine the prospects of each of them for the next year. That is precisely what the chief economist at IndusInd Bank, did for us in this analysis. His conclusion: ‘The year ahead would therefore be one where old and new risks to growth continue to shape an uneven multi-speed recovery.’

What if, as this FT article (free to read for MC Pro subscribers) says, ‘certainty is fleeting in a world beset by uncertainty’? And what if, it adds, ‘this is the start of even greater volatility?’

For investors, the answer to that question is to get into defensive stocks. That’s all very well, but in this market, what is a defensive stock? Our independent research team has picked Bharat Dynamics as an example.

As another gem attributed to Yogi Berra says, 'The future ain't what it used to be.'

Other investing insights from our research team:

Endurance Tech: Best proxy to play growth in the 2W segment

What else are we reading today?

Are FPIs really selling?

Larger firms are getting stronger in Indian pharma market

Economic Recovery Tracker: Mixed signals continue as economy braces for Omicron impact

Crypto Conversations: Why the luxury tourism industry is latching on to blockchain technology

Personal Finance: Protecting yourself against rising online fraud

Technical picks: HFCLTata CoffeeDeepak Nitrate and HCL Tech (These are published every trading day before markets open)

Also, check out MC30, our curated basket of 30 mutual fund schemes from the 1,660 available in the Indian market. This will help you build a solid mutual fund investments portfolio.

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Manas Chakravarty 

Moneycontrol Pro

Manas Chakravarty
first published: Dec 28, 2021 03:36 pm