 "Poor Q3 results? With a rally going on, investors don't care")
Are investors largely ignoring the dull performance of companies in the third quarter? It seems like it, going by recent stock market performance.
A Credit Suisse India Strategy report highlighted that fact recently.
Source: Credit Suisse
The chart above shows the performance of Nifty stocks one month before results season started and one month after the season began. As the chart shows, shares of companies that beat consensus expectations have performed the best.
Even companies that reported results below expectations performed better before and after the results season started (shown on the right of the chart). Companies that fell in this category include Bhel, Tata Steel, Reliance Communications and Adani Power - all of them missed estimates but performed fairly well in the markets.
In fact, the stock market laggards were those companies that actually just met market expectations of their results (shown on the left of the chart).
The report also points out that the greater a stock’s decline between November 2010 and 20 December last year, the higher were its gains in the rally that began with a roar in January.
Helping the rally have been some soothing words from global central banks: The US Federal Reserve promised to keep interest rates at historic lows until late 2014, while the European Central Bank pledged to offer unlimited cheap money to troubled banks in the region.
That has increased the confidence of investors who now believe that the results of the third quarter may be no longer be representative of what happens in the future.
In terms of recommendations, the report flags SBI, BHEL and JSW Steel as stocks in which to book profits. Others such as Axis Bank, Hindustan Zinc and KSK Energy are rated ‘attractive’.