The results season has begun. The market is approaching this season with fear, low expectations and very little to cheer. Confidence is running low, and nobody expects a good result season that will boost overall sentiment. The first few company results did not further damage sentiment much.
But the unabated selling by FIIs, even before the results, has dampened the mood in several largecap index movers. The hurry to exit several benchmark-impacting stocks has made our indices more vulnerable and technically bearish. Nervousness is palpable in the air. Investors wonder how the selling would turn after companies release results. With foreign investors already wanting to exit several largecap companies for meeting liquidity pressures arising from redemption by their global investors, the market mood shows no signs of improving.
But valuation of bluechips are clearly in favour of buying. They are already pricing in modest sales growth and soft profit growth. Effectively, the bad news, if any, seems to be priced in already. More importantly, no good news is anticipated, and any positive development or commentary by companies will positively surprise the markets.
Consensus is heavily loaded against buying bluechips, and the relative valuation merits of companies are being ignored. This setting favours contrarian investing strictly aligned to valuation discipline. Any reversal of sentiment, sighting of green shoots, symptoms of better growth offer significant risk-reward and will deliver superior returns from here.
