Good start to earnings season - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Good start to earnings season

Jul 12, 2000

In coming days corporates will walk down the earnings ramp, trying to impress the markets with their 'performances' and 'outlook'. The markets will take keen note. That the markets have failed to react to the strong financial posted by three corporate giants - Infosys, Satyam Computers and HDFC, is one thing. It seems such a performance was already accounted for in current valuations. But how will the markets react if a company were to either miss or exceed expectations.

Earnings growth is a key determinant of stock market valuations. Indeed, Warren Buffet in one of his rare discourses on stock markets counted this as one of the three things that he would look at to determine the course of stock markets (he was infact speaking of 'after tax corporate earnings to GDP', which in this case we relate to earnings growth).

Software companies command astronomical P/e multiples largely due to their fantastic growth rates (Infosys' net jumped 109%). This makes these stocks look not so expensive when one uses other valuation criteria such as the P/e-growth ratio. Therefore, if earnings growth were to falter, one can convincingly take a view that valuations will be headed lower.

Another important development has been taking place in the markets in recent years. Markets have been keen to look at companies more closely in terms of the quality of management and transparency of earnings among other factors while determining valuations. Therefore, we have the case of Zee Telefilms (and its web of subsidiaries), which fell sharply on the announcement of its results (it recovered a part of the losses in subsequent days). On the other hand companies such as HDFC, which despite growing by a more sedate 20% continue to be favored by markets. Earnings growth is one thing. Quality and transparency of the same is another (and needless to say a very important) thing.

The process of sifting is likely to move a step further this quarter. Expect markets to accord premium valuations to companies with a proactive and respected management, focused vision, strong financial performance and attractive business 'outlook'.


Equitymaster requests your view! Post a comment on "Good start to earnings season". Click here!

  

More Views on News

The Gold and Silver Bull Market is Not Over (Fast Profits Daily)

Sep 29, 2020

The last few days have been nerve-racking for bullion traders. Stay calm. The bull market still has a long way to go.

Earned Short Term Capital Gains on Shares? Here's What You Need to Know While Filing ITR (Outside View)

Sep 29, 2020

PersonalFN explains CBDT's clarification regarding scrip wise disclosure in ITR in case of short term capital gain.

This Smallcap is a Must Have Stock in Your Portfolio (Profit Hunter)

Sep 29, 2020

Investing in this smallcap could open doors of huge, long-lasting wealth.

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

My Top Pick for 2021 is Not a Stock. It is Something Much More Powerful (Profit Hunter)

Sep 28, 2020

My top pick for 2021 is something that has helped me and my subscribers beat the stock market by a factor of 2:1.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 29, 2020 (Close)

MARKET STATS