The Indian equity markets have had a buoyant time in recent weeks. The benchmark BSE-Sensex has gone up over 9% in the past one month. As a result a lot of investors have been wondering if the tide has turned for the stock markets at least. Well the underlying reason unfortunately gives nothing to cheer about. At least not to the long term prudent investor. A major reason behind the recent run up in stock prices is foreign Institutional Investors (FIIs) interest. But at the same time there is another reason for which we need to give you a bit of a backg round. It has a lot to do with the upcoming quarterly result ann ouncements.
The upcoming September quarter results are expected to be another subdued set. Inflation as well as interest rates has continued to remain firm. At the same time the slowdown has affected the demand growth for both goods as well as services. Those companies relying on external demand to compensate may have to wait a while longer as the global headwinds continue to blow. As a result, the quarter results would not give investors much to cheer about. So one would wonder as to how the expected negative news is driving up stock prices.
The answer to this is that most stock market participants are expecting this quarter to be the bottom of the earnings cycle. This means that the quarter results will mark a turnaround point for companies. After this they should start delivering healthier results. The participants have a reason to expect this too. They think that the Reserve Bank of India (RBI) will start bringing the interest rates down. This in turn would fuel investments and consequently help companies deliver better results. But they seem to be forgetting the reason why RBI had turned hawkish in the first place. I nflation is still high and with the renewed FII interest in asse t classes, is expected to continue remaining high.
Nevertheless the point is still the same. The participants are relying on short term data points to take a view on stock markets. This in our opinion is a futile exercise. It is best to leave the quarterly earnings to the companies. It is nothing more than an indicator of their short term performance. It would be better to concentrate on long term fundamentals and business models instead. And if you have identified such a stock then the short term news of negativity is nothing more than an opportunity to get this great stock at a bargain. Going along with the herd will yield nothing but pain in the long term.
The upcoming September quarter results are expected to be another subdued set. Inflation as well as interest rates has continued to remain firm. At the same time the slowdown has affected the demand growth for both goods as well as services. Those companies relying on external demand to compensate may have to wait a while longer as the global headwinds continue to blow. As a result, the quarter results would not give investors much to cheer about. So one would wonder as to how the expected negative news is driving up stock prices.
The answer to this is that most stock market participants are expecting this quarter to be the bottom of the earnings cycle. This means that the quarter results will mark a turnaround point for companies. After this they should start delivering healthier results. The participants have a reason to expect this too. They think that the Reserve Bank of India (RBI) will start bringing the interest rates down. This in turn would fuel investments and consequently help companies deliver better results. But they seem to be forgetting the reason why RBI had turned hawkish in the first place. I nflation is still high and with the renewed FII interest in asse t classes, is expected to continue remaining high.
Nevertheless the point is still the same. The participants are relying on short term data points to take a view on stock markets. This in our opinion is a futile exercise. It is best to leave the quarterly earnings to the companies. It is nothing more than an indicator of their short term performance. It would be better to concentrate on long term fundamentals and business models instead. And if you have identified such a stock then the short term news of negativity is nothing more than an opportunity to get this great stock at a bargain. Going along with the herd will yield nothing but pain in the long term.
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