Some factors that investors need to track

The annual results season is here and the results from large companies will start coming in from next week. The results reason is crucial as the economic conditions have improved, and the government and Reserve Bank of India (RBI) have started getting out of the economic stimulus schemes. The foreign institutional investors (FIIs) have invested close to 20 billion dollars during the last one year and their confidence in the domestic economy and companies have grown with time.

These are some of the major factors investors should track during the coming results season:

Inflation

The inflation rate has gone to alarming levels during the last couple of months. The RBI has started tightening the monetary policy to control the situation. However, the changes in the monetary policy show an effect with a time lag of a few quarters and therefore it is important to analyse the performance of interest rate sensitive sectors and companies with extra care.

Currency appreciation

The currency has appreciated sharply against the major foreign currencies - dollar, euro, British pound etc. Analysts believe that further appreciation cannot be ruled out as FII inflows are quite robust, and the RBI is not planning to intervene in the Forex markets. Investors should evaluate companies that have exposure to Forex transactions.

Recovery

Most of the developed global economies have come out of recession but the recovery is still quite slow and not convincing. It would take a few more quarters before a clear picture emerges on the global economic front and investors are bound to get some negative news. Therefore, it is important to keep this fact in mind while analysing the results and making buy or sell decisions in the markets. These are some of the significant factors investors should analyse:

Compare performance

The first and most basic strategy is to compare a company's performance with its previous year's performance as well as with its previous quarter's performance. This gives a quick overview of the company's performance and generates questions to help further investigate the results. Investors can compare the results of a company with those of its peers and competitors. This helps in getting a quick feel of the general sector performance, apart from a comparative performance analysis. If the results are unusually good or bad, investors should try to find out the reasons. Investors should discount any one-time issues factored in the company's results that are reflected in its overall results.

Check ratios and parameters

Investors can also look at various parameters and ratios to analyse a company's financial health. For example , the order book, inventory levels, sales numbers etc. Some general information on various ratios and parameters is easily available. Also, follow the quotes of the company's top officials. This helps in getting a sense of what is happening inside the company.

Analyse macroeconomic conditions

Investors with a deeper understanding of economics can look at analysing the impact of various macroeconomic events and the current economic conditions on a company's performance. This will help in identifying and understanding the business-specific and sector-specific challenges.

Markets poised delicately

The domestic markets are at a crucial junction at the moment. They are trading almost near a 24-month high. The expectations from the coming results are very high, fueled by the improvements in the general economic conditions globally. But on the other hand, there is some apprehension on the inflation rate and the way the RBI will handle the current alarming situation. The valuations in the markets are no longer cheap and further upside movements will depend on a company's performance, global economic developments and flows from FIIs.

Source:economictimes.com