Well, what can one say' Shock and Awe is the theme, plus worries like payment crisis. Everybody is simply astounded, except, that is, the regular readers of this column. Over the last one year I have been saying that the market expectation from software companies is too high. Infosys’ excellent September quarter was an aberration and Wipro, Satyam and others had come out with results that looked awful. I had no special insight. I looked at the published numbers and mixed it with common sense (demand is not growing fast but the supply side is, as more and more foreign software companies set up shop here). How do you explain the collective ignorance and hopes of millions of investors, fund managers and brokers, not to speak of technical analysts'
Last week, I had said about Infosys, “the market is expecting a guidance of 30 per cent in net profit for the next year. I guess it is too much to expect that market players would do even the basic numbers. Infosys will end this year with a 17 per cent growth. And it happens to be enjoying the second-best growth rate among the listed large software companies (after i-flex).” My theme remains the same: sell the rallies (after five days), buy extreme weakness and ignore all predictions of a bull market for now. In the event, the market reversed after five days and simply collapsed in a heap of disappointment over Infosys’ guidance of 12 per cent profit growth. I do hope none of you were caught in the false beliefs, promises and hopes that fund managers, brokers and the press/TV people dish out routinely. They are not malevolent people.They are simply doing their jobs. You are alone responsible for your profits and losses. They are all now talking of downgrading the IT sector. Some academic types will soon talk of solid cash flows of the software firms, as if that alone decides market prices.
Regular readers may recall my persistent theme that has played out accurately so far : lack of pricing power, strong supply side and turbulent external environment make it very difficult for large companies to show incremental profits. The only businessmen making good money are small and medium sized companies (most are unlisted) and those that can export profitably.
I expect the market to rise today (for a complex set of reasons that cannot be described easily here). What will take us there' I expect money to move into stocks like Tisco, Telco, M&M, Reliance, State Bank and some drug stocks. We may get stopped at 3050 but eventually we may get to 3100. I cannot see much beyond that. There is a strong chance that we will go below 2800 but that move is not yet clear to me. The dark horse now is Reliance. If its telecom misadventure collapses in disappointment, 2800 wouldn’t be a surprise.
PS: I keep getting emails from readers wanting specific investment advice (I don’t offer it) and personal meetings (I don’t live in Calcutta). However, I welcome these mails because I need to know whether you are benefiting at all from my views. So, please keep sending them, including the advice from your brokers and friends.