Nomura India Index to Help You Face the Googlies in Eco Data

Nomura Securities launched an index that will capture the wild fluctuations in Indian economic data that will help traders in securities markets to know the direction. The new index known as Nomura Economic Surprise Index for India will comprise variables such as the Gross Domestic Product (GDP), industrial production, Purchasing Mangers' Index (PMI), bond, currency and equity markets. 

"The index essentially captures the extent of surprise in economic data with respect to market expectations," said said Aman Mohunta, economist, Nomura Securities. "They are important because markets react to surprises in economic data in relation to expectations, rather than the actual data, and the trend in surprise could help in assessing the market movements." Traders have been handicapped by sheer surprise thrown by Indian data as they differ wildly from the reality. Thus, it even drew the criticism from the Reserve Bank of India. Many times the actual data is far higher or lower than what analysts expect, leading to wild fluctuations in the market. Nomura measures the data surprise as the difference between the actual data release and market expectations. For market expectations, it uses the median of Bloomberg surveys. In cases where Bloomberg expectations are unavailable, such as the PMI, it takes the 3-month moving average as the market expectation. It then aggregates the different standard scores into one numerical value for the period, calling it an aggregate Z-score. It assigns equal weights to all the variables to calculate the aggregate Z-score. 
A reading below zero indicates that economic data are surprising negatively, while a reading above zero suggests data are surprising positively. History shows that stock, bonds and currency markets move in the direction of the index with a lag, though with a different magnitude. 
gayatri .nayak@tiemsgrou.com