Professional forecasters appear to believe that the Sensex will be around its current level even in June next year. That’s the message from the Reserve Bank of India’s 12th round of survey of professional forecasters, conducted in June. The median value of the Sensex predicted by the wise men is 18,200 by the end of the current quarter, 18,075 by December-end (a bit of a dip), 18,500 by the end of March (a rise) and then 18,200 by end-June (back to current levels). On Monday, the Sensex closed at 18,287 points.

In short, they expect the market to be range-bound. The minimum forecast for the Sensex at end-June is 17,000 and the maximum, 19,900. The forecasters seem to have become more pessimistic in recent months—the 11th round, held around three months before the 12th, showed the median reading for the Sensex at 19,250 by the end of March, with the minimum at 18,000 and the maximum at 20,000.

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What’s interesting is that the lower forecast for the Sensex has come about despite greater optimism on several other indicators. For instance, corporate profit growth estimates have been revised upwards. While the 11th round predicted corporate profits in 2010-11 to increase by 20%, the 12th round puts this growth at 22.5%. The real gross domestic product (GDP) growth rate at factor cost has also been revised up from 8.2% to 8.4%.

The trouble with such forecasts is that they usually reflect the prevailing mood. If the survey were to be held today, when risk appetite has staged a comeback, the results would probably have been much more upbeat.

Nevertheless, the recent track record of the survey hasn’t been too far off the mark—the 11th round survey, conducted in March, predicted that the Sensex would be at 18,100 by end-June, the Sensex ended at 17,700.

But while short-term forecasting is notoriously difficult, the predictions of GDP growth for the longer term have been remarkably consistent. For instance, during the eighth round survey in the first quarter of 2009-10, the median of the forecasts predicting the annual average growth in GDP for the next 10 years was 8%. During the 12th round, this prediction is 8.1%. The median forecast for average inflation for the next 10 years, too, has remained steady at 5%. There seems to be a considerable degree of agreement that the country’s long-run sustainable rate of growth, i.e., growth without overheating, or too much inflation, is around 8%.

Graphic by Naveen Kumar Saini/Mint

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