We anticipated that there would be a need to reset expectations. This result season clearly seems to be confirming our fears. Several marquee IT companies, Reliance, and top private banks like HDFC and Kotak are all falling short of earnings expectations. Clearly, markets were expecting more than they should have.

When earnings expectations miss, markets are left with limited options. The markets have to lower their expectation and adjust valuation metrics down for the subsequent quarters. Naturally, companies with significant earnings misses will need to be derated. It is still early days, as the coming weeks would see more companies announcing their results.

Companies announcing their results late will probably disappoint more than companies that were early. After all, the early birds have also disappointed. Overall, it appears to be a season of disappointment. But the indices are hardly showing signs of disappointment. FIIs have turned buyers over the last 7 trading sessions and flows are temporarily reversing. The following weeks should give us more direction on flows and FII behaviour. That would set the course for the earnings reset.

Once earnings reset, the markets will need to re-valuate investment options, rejig portfolios, make fresh choices, and prepare for the future. It will be interesting to see how expectations and reality diverge. An investor must handle this divergence sensibly and try to make his portfolio resilient. What an investor does should reflect his learnings from the result season to provide a direction going forward. The learning hour has only begun.

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