The result season has been very underwhelming so far. Most bluechip companies that have come out with results have shown muted growth in revenues and profits. The beginning of the result season is usually a time when the best results get released. By that yardstick, this season has not begun well.
Yet, the markets have shown strength with very little negative impact from the results. This is largely due to FII flows turning distinctly positive in mid-April. If FII inflows continue, we may see a divergence between corporate results and stock prices. Dips will keep getting bought in large caps, and this will lend stability to the index.
But, this market will also see significant rotational trades within the headline indices. Sectors that are currently out of favour will also get bought as liquidity seeks avenues for deployment.
For investors strongly aligned with value investing principles, this market poses a difficult challenge. They will struggle to invest in large-cap stocks, which look richly valued. If they seek value in undervalued pockets of the market, they may still see these segments getting sold down whenever volatility spikes.
This market demands tremendous patience and persistence in portfolio building, and it will test investors who are accustomed to seeing easier returns from equities. The buoyancy seen in headline indices will only confuse matters further.
The focus this year should be on the effective deployment of capital at favourable valuations in specific pockets of the market. Returns will probably need to wait.