Leading financial research and securities player Nomura India will come up with a dedicated index aimed at capturing the extent of surprise in key economic data releases with respect to market expectations.
The new index, known as the Nomura Economic Surprise Index for India (NESII), will comprise variables such as various sets of numbers like the GDP, IIP, purchasing managers index, bonds, currency and equity markets, according to a Nomura Securities statement.
“The NESII essentially captures the extent of surprise in economic data with respect to market expectations. The index is designed to capture the momentum and direction of data surprises. Many economic surprise indices exist for big, advanced economies, but few exist in emerging Asia,” said Nomura India chief Sonal Varma and its economist at the securities division Aman Mohunta.
The statement, however, did not say when the index will be launched.
Varma further said correct numbers are important because markets react to surprises in economic data in relation to expectations, rather than the actual data, and the trend in surprise can help in assessing market movements.
She further said the NESII should be considered a tactical tool. Since the index is mean-reverting, data surprises at extreme levels (either very positive or very negative) can be a useful contrarian tool in picking turning points in equity, forex and bond markets.
Last year, the RBI governor had expressed concern over the sharply varying macroeconomic data, including those on growth and inflation, which he said on some instances led to off-the-mark estimates on the economy and his own inflation forecast, which had to be revised upwards many a time.