Capital markets are known to respond to reported results of corporates every quarter. Movements in prices of stocks at individual level may be dependent on their individual performance. However, the broad movement of index is based on aggregate performance of all the stocks. In fact, the sentiment turns favourable if majority of the stocks report better numbers and improve profitability.
Vivekam intends to capture aggregate performances of stocks falling in different categories and present to its clients a guidance on possible movement of stocks based on latest quarterly results. This page will be updated as frequently as feasible so that our clients will get the latest view on collective performance of stocks falling in different categories. Please keep visiting this page as often as possible.
In order to weed out unworthy companies from influencing the underlying strength or weakness in corporate performance, we separated all those companies whose market capitalisation is less than Rs. 1000 crores. At 4 PM on November 20, 2015, 2604 stocks falling into this category have come out with their quarterly numbers. When we compared the aggregate of their trailing 12 month(TTM) performance we noticed a drop of 1.86% over previous TTM. However, it is heartening to note that 1311 stocks out of 2649 have reported better performance while 1339 reported poor performance. The magnitude of gain or loss in the aggregate profits of winning and losing companies was pictorially presented in the first chart title “Less than or equal to Rs. 1000 crores market cap”.
We presented the results of companies enjoying a market capitalisation above Rs. 1000 crores as well. In this category 381 stocks out of 599 stocks have shown the improvement which implies 64% of the stocks have done well on trailing 12 months basis. Aggregate profits of improving companies have gone up by 9.27% while losing companies have seen a setback of 19.68% in their bottom lines. On the whole, this set of companies has recorded an increase of 0.23% in profits. Next to this picture, we narrowed our analysis to companies with market capitalisation above Rs. 5000 crores. 65% of the stocks that have reported quarterly performance have improved their profitability by 8.48%. 35% of the stocks or 86 stocks out of 247 (that have reported results) have reported setback in their profits. Viewed together, this set of companies has reported an increase of 0.37% in their aggregate profits.
When we checked stocks with over Rs. 10,000 crores market capitalisation, 67% of the stocks (103 stocks out of 154) have reported better performance while only 54 stocks have suffered in their profits. The aggregate profits in the current period versus previous period were shown in picture with numbers atop bars. It is heartening to note that 62% of the stocks, that have over Rs. 25,000 crores market capitalisation, improved their bottom lines as shown in the picture. When we consider stocks that have more than Rs. 50,000 crores market capitalisation, 72% of the stocks (29 stocks out of 40) have shown improved profits. This indicates that larger companies were able to improve their margins even in challenging situations. This augurs well for stock markets in the long run.
To get a view on the performance of companies covered by nifty, we checked on the performance of those companies in nifty that have come out with their latest quarterly results. The global rout in commodities has contributed to the fall in profits for stocks engaged in that line of business. Barring them, a vast majority of stocks reported improved profits, albeit with a narrow margin. 64% of the stocks (32 stocks out of 50) have improved their profits while only 36% of the stocks or 18 stocks have reported falling profits. The global meltdown of commodities is strongly believed to be nearing its bottom and hence an uptick is expected even in commodities stocks in the next quarter. When that happens, with majority of stocks managing to do well, nifty is very likely to surge and seek higher levels in coming months.
From these pictures it is evident that larger companies or well-managed companies that are dear to the investors hearts have improved their performance despite adverse economic conditions like higher interest cost. This could be achieved only by tapping economies of scale and optimising their operations effectively. Interest rates have been lowered recently and the impact of reduced interest costs would imply increased profitability in the coming months. It is a known fact that smaller companies pay higher interest while market leaders continue to enjoy availability of funds at lower rates. Therefore, the coming quarter should be more favourable to smaller companies than larger companies. Hence, buying into quality MidCap stocks should yield more returns to investors by January or February 2016.