Sunday, July 19, 2009

Quarterly Results

Stock market investors very eagerly wait for the quarterly results and I would like to through some light in this regard why it is important for the investors. Sure, we know that companies have to perform well financially but we also need to understand that it is very difficult to announce the market beating results every time. So, quarterly results are one among the many that we need to keep watching to understand the companies.

Quarterly Result

Quarterly result is the short term financial performance of a company which helps the management as well as the retail investors to understand the progress of a company. Companies typically announce the quarterly results four times a year and the results can be found in the company website or with SEBI or in any brokerage firm’s website.

Quarterly results can often be misleading and it is very important to pay careful attention. Example: Recent Quarterly result by L & T. On the outset, the result says that the company has earned Rs.27 a share for the first quarter of 2009-10 period. But if we look at the statement carefully, we can see clearly the result includes a one time exceptional gain of Rs.1020 Crores through the Ultra Tech stake sale. Excluding the exceptional gains, per share earnings would be just Rs.10 for this quarter.

Short and Medium Term Investors

Quarterly results are very important for short and medium term investors while the magnitude of importance decreases for the long term investors. It is also very important for the investors who are thinking to stay for a long term but are just starting. For the short and medium term investors, it helps to either maximize the profit or minimize the loss as the stock price shows volatility based on the result most often than not. In the short term, stock price heavily depends on the market sentiment, external forces like budget and rainfall, and company performance like quarterly results. So, if you are a short term investors, you do not want to take the risk of investing in a company whose recent quarterly income stays in the negative.

If you are a medium term investor, quarterly results help churn the portfolio. In the medium term, if we see or anticipate a bad result, then we can sell those stocks and buy stocks that are promising and are expected to announce good results. If the company is good, and we are able to anticipate the bad result, then we can sell before the result and buy it back after the result when the stock price comes down. Sometimes, great companies fail to announce good result in one quarter and prices comedown significantly. Times like those offer very good opportunity for investors to buy them at a low price.

Long Term Investors

Quarterly result again helps in many ways for the long term investors. If you are thinking to keep invested for a long term but just starting, quarterly results help you to select good stocks and build a great portfolio. But what about the long term investors who have already invested? In fact quarterly results many times are not that important for the long term investors who already invested, had they selected good stocks in the first place. But it is not always possible to build a portfolio without some average stocks. So, quarterly results help those investors in couple of ways. They can either sell the companies that have announced bad results and are expected to decline going forward or they can rejig the portfolio by selling average stocks and then invest back the money in good companies.

But if you are a long term investor, and have selected the stocks after careful consideration and fundamentals remain very strong, then you do not need to worry about the quarterly results till you reach your target price. Because, it is not possible to announce great results all the time and companies might encounter either operational or marketing or administrative difficulties in some quarters and are bound to announce bad results. But if you are a smart investor, you have to grab that opportunity to accumulate the stock rather than panicking and selling the stocks that you currently hold.

Recent Results

Most of the Indian companies have announced good results this quarter and that has made experts all over the world to believe in the so called “India story”. Companies like Axis Bank, Infosys, TCS, L&T, Opto Circuits, Colgate, Crompton Greaves, Welspun Gujarat, PFC, HDFC Bank, Indowind Energy, and Geojit, have announced decent results if not exceptional. In fact Indian companies have been announcing decent results throughout this recession period which makes me believe that the stock market might reach new highs in the next five year period. Long term investors can buy some selective stocks even now and they would be up for a good return if they stick with it. Most of the Indian companies are managed with a conservative mindset which reduces the potential risks associated with business in general. Hence, India is poised to attract more FII investments and once they start buying, our domestic funds and institutional investors will show more interest and that would be the crazy next Bull Run.

Kumaran Seenivasan.


Shabu's July 19, 2009 at 11:52 PM  

Dear Kumaran,

Nice article. I am agree with your thinking of a possible Bull run. Things are gradually coming to that way. Thanks for the post.


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