The Bull Running for Red Flag - Waiting to Get Hit?
In addition, I looked into the latest quarterly earnings of the 30 Indian corporations that are included in the SENSEX.
- I compared total income, operational profits, gross profits, net profits, and earnings per share.
- In most cases, the latest quarter was quarter ending March 2009 while in some case it was based on quarter ending December 2008.
- Red indicates negative, Green indicates positive and Yellow indicates no changes in quarter-over-quarter results.
- Table 1 below shows the mapping of this performance for all 30 companies.
As you can see in the table, there are more negative attributes than any positive indicators. Only seven companies are showing positive results across all parameters, while eleven companies are showing negative results. In the remaining 12 companies are also showing mixed results.
Another aspect that is very surprising to me is corporate leadership completely mum on the impact of Indian Rupee depreciation. When the Indian Rupee was at Rs 39 to a dollar, there were slew of media news that it is negatively impacting billing rates (and margins) of our exporters. Now that the Indian Rupee is trading at approximately Rs 50 to a dollar, shouldn’t that increase the earnings?
I believe that the slow down has had significant impact on earnings. But it is somewhat blunted (i.e. impact is reduced) by the Rupee depreciation. Since this is a positive affect, this is being pushed under the rug.
All signs are telling me that this rally is another example of irrational exuberance. Market makers and traders continue to lure investors into this game and take their profits. These kinds of rallies are never sustainable because fundamentals do not justify it. It has happened before, and I would tend to believe that it will happen again. The only question that remains is when and at what point?
The bull is running for the red flag. If you want to ride this Bull then position yourself for soft landing.
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This post was originally published on The Income Portfolio Blog on May 8, 2009. It has also been published on MoneyVidya Blog Network.
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