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Markets: A quick recap

May 7, 2007

With a large part of the March quarter result season already behind us, and the flagbearers (most of them) of India Inc announcing 'as expected' results, with not much activity brewing in the FII space, and the with the RBI hanging on with its rate hike campaign, markets have a lot to look for in terms of the 'trigger' that shall take the benchmark indices forward from here on.

As a matter of fact, the Foreign Institutional Investors (FII) community has invested US$ 2.9 bn in Indian equities in this calender year so far (US$ 4.5 bn in the same period in 2006). And the monies have flown in to large caps and mid caps alike as, during the first four months of this year, there has been nothing much to choose from among these categories. However, the mid-February to mid-March period was more of a catch-up phase as the markets were jittered first by the 'unenthusing' Union Budget and then by global meltdown led by China and a host of other Asian markets.

The RBI's interest rate hikes added fuel to fire, with the central bank, in its latest meeting, deciding to pause a bit before taking another go at inflation (which has been uncomfortably above the 5.5% mark, largely on account of supply side factors). In doing so (pausing), the Indian central bank has toed the line of its US counterpart, the Federal Reserve, which has been on a 'pause mode' for quite some time now as it continues to take note of the inflation in the world's richest democracy.

With the US Fed meeting this Wednesday to decide (or not) whether to tinker with the short-term interest rates or not, and with some of the Indian corporate heavyweights yet to announce their results for the March quarter, market participants will have a lot to chew on over the next few days. Deliberations on what Dr. Reddy (the Reserve Bank of India (RBI) governor) will do if inflation does not ease off will also keep them (the participants) busy.

In the meanwhile, with stock prices increasingly being dictated by the quality of results that companies are coming out with, it should be pertinent to add that a quarter or two's performance should not be given undue weightage. While for some companies, it might truly reflect a need for revision in expectations, for others, it might just be a temporary blip, either positive or negative. The key to successful investing is to zero in on few key value drivers and tracking their movement. It is important not to get lost in the huge mountain of numbers that one is exposed to


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