How to Navigate through Quarterly Results, both Good and Bad

Fri, 18 Nov 09:30 am

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Various micro and macroeconomic data has kept Indian share markets on tenterhooks of late. Most of the volatility has been fuelled by Trump's victory and the demonetisation drive by the Indian government. Both events added tremendous uncertainty in the markets.

And it's far from over. There are a host of data releases and economic developments that will keep market participants on the edge of their seats during the coming week. Some being the winter session of Parliament, the GST draft, the OPEC meet, etc.

However, most of volatility in domestic markets will be seen on the release of September quarter earnings announcements by Indian companies. This we say because as many as 50-odd BSE-listed companies are scheduled to announce their results this week. And the effect of this would be seen today as well as in the upcoming trading week.

As always, there would be analysis reports on companies that provide estimates on the quarterly financial performance. And market participants will gear up to invest in stocks that will gain most of the fad.

That's the case every time. Estimates and even the actual corporate earnings every quarter tends to be a major 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 analyst's forecasts by even a small amount, the stock is trashed.

In all, these announcements put investors and stock markets into a frenzy.

So the question is: What can one do in order to sail safe during such times?

Being Buffett heads and taking his advice as fish to water, we think the best way to counter this volatility is to follow a long term value investing approach.

Investors should keep in mind that quarterly results are just near term trends. They do not reflect the long term picture of the company. The picture painted by quarterly results may be gloomy that can lead the short term investors into a state of panic.

On the other hand, value investing is contrarian. It evaluates stocks on the basis of their long term performance. It is more businesslike approach. And we believe retail investors would do themselves a world of good if they pay more attention to this aspect of investing.

As far as our outlook over the long term is concerned, we believe that the benchmark indices can go up as much as 70% in the next two-to-three years. And Tanushree Banerjee, Equitymaster co-head of research, recently reaffirmed this claim and stated that the 70% earnings upside extends well beyond Sensex.

Here's a snippet of 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%.

Our StockSelect team is already on the lookout for opportunities in such blue-chips. Subscribers can expect recommendations from the StockSelect team, as and when these blue chip stocks offer opportunity to invest.

Also, the Microcap Millionaires (MCM) team is of the view that the current market volatility can provide you with opportunities to make a few yet very profitable investments. The team has just put together a report that summarizes the top stocks that they think every new subscriber should make a part of the equity portion of the MCM group of stocks. Therefore, if you are starting out, there's no better stocks to start your wealth building journey through Microcap Millionaires than the ones covered in this report.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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