Markets Next Week: A Fundamental look at Things

Its the Results season and already Infosys has hit a road block. The Markets tanked on Friday and lets have a look at what could be the road ahead for the markets.

1. Infosys had a double whammy. Poor results and Mohandas Pai leaving the company. Infosys is a company built on processes and too much is being made of a departure of a certain Individual. The knee-jerk reaction also is significant in highlighting the dangers of a personality cult.

2. More worrying is the drop in Margins to 29 pc. Infy is well known for high Margins of 33 pc for all these many years. Infosys has grown to a particular size. Where will the next phase of growth come from is the main question. There are several worrying questions like, how does the non linear growth come from. By non-linear, I mean that revenue and profits should not be linked to manpower growth. Putting it simply, it means getting high value businesses like Consulting where the billing rates are more.

3. On a revenue growth comparison, TCS and Cognizant are pulling ahead of Wipro and Infosys. I believe this is a cyclical phenomenon and one cannot write of Infy yet. Infy will now become a value stock like HUL and not a growth stock. A solid rock in one's portfolio but not the dazzling star.

4. Crude continues to boil over, gold and silver prices continue to zoom. The European cockroaches are coming out again. A Spanish default and Gold could cross 1800 dollars.

5. Oil imports continue to bleed our economy and the government waits for elections to get over. Inflation continues to rise and expect a 50 basis points hike soon in the interest rates.

6. Real Estate stocks are in a shamble, autos and banks would be the next to go down.

7. What could take the markets up? Further cheap money in the form of QE -3 could flood emerging markets and take us up. Till this is announced, expect a range bound to a negative bias to the markets.

8. The results are factored in. Only some bad news like Infy or extra ordinary good results can cause big swings.

Markets typically hit some kind of bottom around May. 1 of the myths floating around is Sell in May and go away. If I look at past data, I would prefer to buy in end of May. Reason? Markets usually bottom in March-May for the year.

Portfolio highlights could be Gold, ONGC or Cairn and Debt funds. This is keeping in mind a conservative 16 pc return over the next 1 year. Gold has given a return of 26 pc if bought in Dec 2009 when I commenced my SIP in gold. This meets my target of 16 pc annual returns without taking undue risks.