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Is This the Time to Rejoice Quarterly Results?
Tue, 10 May Pre-Open

Financial dailies are spoilt for stories as quarterly result season kicks in. This time was no different. First, there were articles on what investors could expect from the quarterly results. And now that the results are getting announced, these business papers are choc a bloc with hits, misses and what lies next stories.

This quarterly phenomenon often has an unreasonable influence on investor sentiments. The company's under or outperformance is immediately reflected in market movements. If the company beats street expectations, the stock takes off like a rocket. On the other hand, if the company miss analysts' forecasts by even a small amount, the stock is trashed.

A case in point is Infosys. The company declared its March quarter and full year results last month. The company announced that it surpassed the FY16 growth guidance. And the stock of the company, which is not very volatile usually, was up around 7% after the announcement. By the way, to know our latest view on Infosys, please take a look at the result analysis (subscription required).

With so much of information overload and action happening around, can investors be blamed for feeling under pressure to act.

But before action itch gets the better of you, here is are some golden words from investing legend Warren Buffett that you must take note of.

"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

Mr Buffett is the man with decades long experience behind him. And for him, quarterly earnings, in most of the cases, are a nonevent.

Indeed, to have an envious record of market beating returns, long term value investing is the way to follow. And this approach is just focused on fundamentals and intrinsic value of the stocks. If the stock offers enough upside from the current price, it's bought. And then held until a time when market price reaches fair value.

Where do quarterly results fit into this strategy? Well, there might be some cases when quarterly announcements reveal some major change in company's strategy that can have a significant influence on the long term prospects of the company. But often, these announcements, especially when disappointing, could bring enough gap between intrinsic value and fair value for a value investor to benefit in the long term. But beyond that, they offer little insight into the long term business picture.

And as far as our outlook over the long term is concerned, investors have reasons to be optimistic we believe. My colleague Rahul Shah recently made a claim that earnings could go up by as much as 70% over next two to three years, resulting in a similar upside in the Sensex. While Tanushree Banerjee, editor, StockSelect, agrees with the broad view, she believes that not all the companies will ride this upside. One indeed needs to be extremely cautious of company specific factors such as debt levels, capacity utilization and so on before betting on them.

Here's what she wrote -

Plenty of blue-chip stocks outside of the Sensex can fetch earnings growth in excess of 15% per year over the next three years. But if earnings were to grow at 15%, and if profit margins were to rise to their ten-year average of 11% from the current 9.6%, an EPS of Rs 100 can become Rs 174 by FY19. Which means an upside of 74%?

Tanushree and her team are already on the lookout for opportunities in such blue-chips and will reveal these names within next 30 days.

Coming back to quarterly results and market induced action itch, we would like to leave you with this profound statement Warren Buffett said about short-term market movements- "We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."

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Mar 20, 2018 (Close)