The results don’t tell the story of tomorrow.
Infosys proved why it has been a bellwether stock for close to two decades. It silenced its aggressive critics with a characteristic outperformance. One knew all along that critics of the company were going over the top and unduly panning it for slippages which were usually low single digit drops below guidance. Any sensible analyst ought to have been careful not to be presumptuous in judgement of a company with a formidable reputation. But, not our analysts’ community which genuinely thinks it knows more about businesses than managements do. The worst part is that one always knew that these analysts could easily be humbled by a simple, single digit outperformance of expectations. This was an easy thing to do for any decent company and the odds were definitely in Infosys’ favor all along. This brings us to the accountability of the analysts and media anchors to the investor. While one must always accept a genuine lapse of judgement, the analyst community deserves to be collared for their over the top judgements and positional arrogance. After all, the position of equity analyst is not one that gives them unlimited license with no responsibility for their prejudiced judgements. Clearly, it is time to demand accountability from the community.
Earnings tell you about yesterday. Tomorrow is another day.
Sectoral rotation happens when investors have bought too much of a few sectors and they have appreciated in value. This leads to a situation when large investors need to book profits, reduce exposure to a few sectors and also buy into the beaten down spaces. The results season catalyses sectoral rotation as it serves as a reality check for investors. When you know that you actually own something that is very pricey and the results reaffirm that, the savvy investor tends to take some money out. Once he takes the money out, he starts looking for attractive opportunities and the beaten down spaces return to favor. The consolidation of a market depends on successful sectoral rotation. When large investors keep churning their books and rebalance sectoral allocations, the market’s ability to strengthen gets tested. The coming weeks will see how the markets respond to results of the performing spaces like financials and consumption. If the price trends are any indication, profit booking has preempted these results and it will be interesting to see how the markets react to the results and what they do with the money released from profit booking.
Think ahead of the market. Make contrarian bets.