Can numbers lie? India Reports Fastest GDP Growth

Posted On Monday, Jun 01, 2015


Numbers without any context do not mean much. Aditya, a friend I recently met, told me very proudly that his son scored 80 marks in his English paper. The marks by itself don’t tell you much. I asked him what rank did he stood in his class. His answer was 14th, which tells me there were 13 kids who scored higher than Aditya's son did. How much did he score the last time? He said 79, that tells me there has been marginal improvement albeit the history is very small, what were the average marks scored by the class? His answer was 75, which tells me Aditya’s son is an above average student in his class.

So while numbers may not lie, they do not tell you the whole truth unless you see the bigger picture and put the number in the correct context.

‘India - the fastest growing major economy in the world’ screamed the headlines. Between Jan 2015 and Mar 2015, India’s GDP grew at 7.5%, one of the fastest growths visible amongst major economies overtaking China’s growth rate. Our friends at Central Statistical Organisation (CSO, responsible to calculating the GDP figures) have not done the economist community any favours by changing the methodology of GDP calculation without giving a long history of the series. The 7.5% GDP growth by itself does not mean much since we do not know relative to history how that number stacks up. If at a time when the credit growth is at record lows and with most real indicators including two wheeler sales, tax collection, cement growth etc indicating an extremely weak economy, does the 7.5% GDP growth number actually mean based on the new methodology of GDP calculation we could perhaps have grown at 10% + between 2004-2007, when all the economic indicators reported robust growth in the economy. And the 7.5% growth is actually indicative of weak growth in the economy. Whenever the CSO actually issues a back series to the GDP data, we may be able to place the 7.5% GDP in the proper context.

At Quantum, we have generally tried to ignore macroeconomic analysis and the levels of the stock market from interfering too much in our research process. We remain rooted to the bottom up stock selection process; hence, our source of what is happening in the economy comes from the company managements we closely track, their customers, their vendors etc which is then fed into our research models. It has allowed us to stay firmly focused on projecting where a company’s earnings are headed ignoring the noise around the credibility of GDP growth numbers. The earnings forecast arrived at, then forms the basis to arrive at the buy and sell limit for each company, which eventually forms the foundation of portfolio construction. It has allowed us to build a credible track record of performance over long periods of time. This is irrespective of whether the CSO says the economy is growing at 5.5% or 7.5%.

Therefore, irrespective of the noise about the economy or whether the stock in question is in ‘trend’ your fund house will not deviate from the processes we have set to pick stocks that should be part of the Equity portfolio.

We would urge our investors to stay invested in Equities, mutual fund and focus on their respective long term financial goals rather than focusing on market ups and downs.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – to read scheme specific risk factors.

Above article is authored by Quantum.

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