Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. You will very likely lose money if you use any information in this post without your own due-diligence.
How it all played out?
In the beginning of March I anticipated the following:
Although i was off by a few weeks and several percentage points, the markets bottomed in the last week of March and started a ferocious non-stop rally for the next three months. The writing was pretty much on the wall led by the following:
Extremely low readings on the market breadth data
Low VIX
FII net longs at less than 10% by the end of the March
The markets were extremely oversold and a bounce back was a high probability event - just that the timing and the magnitude is something one can never really predict well.
The bounce back was not uniform. While Nifty is up ~14%, the small cap index is up ~21% and several portfolios are up anywhere between 15-40%.
I think what really led to such a big rally in mid/small caps as well as specific sectors and stocks was the extremely robust earnings numbers declared this quarter. Almost every company came out with better than anticipated numbers.
When you get a combination of price correction or neglect + very good earnings, the result is almost always a big rally. This happened at the entire market level in Q4FY23.
Another key aspect of this rally has been how it has been led by an entirely new group of stocks. These stocks are not there in many portfolios which are still stuck with the names of the previous cycle viz. large cap quality. This segment is likely to finally start to perform now while the mid and small caps should take a breather.
Earnings Digest - Review
As promised, I did a bunch of earnings digest this season. Some of the names which i pointed out which had a great Q3FY23 followed up with good or excellent numbers in Q4FY23. The list i had shared in March is as below:
All of them participated in the rally and some of them have turned out to be the best performers across the market in this rally. I would call it a combination of boatloads of luck and the power of the structural principle of earnings based re-rating.
You can view the post here.
The names i covered for Q4 FY23 when the results were announced were:
Avantel
Just Dial
Wendt
MRF
Syngene
Mahindra CIE
Birla Cable
Datamatics
Eimco Elecon
Call it a bull market, they all were among the top performers this quarter. You can check out the actual posts here and here.
I want to reiterate my disclaimer again:
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. You will very likely lose money if you use any information in this post without your own due-diligence.
The idea here is not to give you “tips” or stock names that you can buy or sell randomly, but you introduce you to the nature of earnings re-rating. So please use this material to go back and study how these moves could have been anticipated and how you can apply these principles in the next earnings season.
All the stocks listed above have had a large rally and one would be foolish to buy them blindly now after the big move. Buying is easy, it’s more important to know how to sell the earnings winners - a topic i will hopefully cover in the one of the future posts.
Global Markets
The global markets are having a rally much like our own. This is primarily led by the notion that FED is done hiking the rates and that the liquidity squeeze will slowly end.
I was wrong about US Tech. I expected them to be rangebound for several quarters. However tech is leading the rally led by NVDIA and AI stocks this time. The FAANGs have reported good numbers largely led by Meta and they are all doing well. A lot of them are coming close to their all time highs. However given their market caps which is now in trillions of dollars i am circumspect as to if we can have anything more than steady compounding here - which in itself is not a bad deal.
The big money however will as always be in new tech. That is where we need to be focussed. US remains the hot bed of innovation and a lot of mega winners will come out of that market. I have recently started tracking the earnings there and just like India the opportunity remains huge there and most definitely much bigger than any market globally.
What Next?
Markets have broken out to all time highs after more than 18-20 months. Typically this means that the rally will likely continue. However given the pace of the rally that has led us here, one needs to be a bit cautious with new money or exposure here. The momentum can take us 4-6% higher but one is better off waiting for a pull back to deploy incremental money. Like i have been saying a new cycle has started already and themes in play are already clear. I did tweet about it a few weeks back:
https://twitter.com/prabhakarkudva/status/1667714983042637825
Keep an eye on these sectors and stocks in these sectors in particular - because this is where the incremental money is likely to come.
Until Next Time!
Thank you for sharing your thoughts. I learnt a lot from this.