The results season has begun on a soft note. Anyway, expectations were set lower. Companies barely matched these lowered estimates. The expectation setting is also very clever. IT majors are signalling positivity by showing strong order books. Other firms are by and large circumspect in their guidance.
Already, individual stock prices are responding to filed business updates. Post results, the market is habitually showing relief, even when results are anything but exciting. Has the market already factored in a muted quarter? From initial signs, the markets appear more than willing to buy stocks in a show of relief after the results are out. But, once the dust settles on this result season, we will see the market become far more tight-fisted with valuations.
Prevailing valuations hardly justify recent business performance. Even guidance does not show adequate promise. This warrants a definitive calibration of valuations in specific sectors and companies. This distinctly turns our investment focus bottom-up and forces us to be far more company-specific.
While the stock market will always offer interesting pockets of value at all times, an investor’s duty is to be far more disciplined in his process, selective in his choices, and decisive where conviction is high. This means declining investments lacking valuation comfort and unflinchingly buying at the right valuations. Where discipline is all important, decisiveness is still key.