A case for bulls

Let me share a secret. Don't be surprised, if the December quarter produces some wild numbers. Consider this: PAT (profit after tax) of some 2,000 companies was Rs 25,500 crore in December 08 quarter. PAT during September '09 quarter was around Rs 43,000 crore. Sequentially PAT continues to inch up. With volume growth picking up, India Inc. might report the highest ever PAT during the December '09 quarter. Even if it's a flat quarter sequentially, at Rs 43,000 crore, PAT growth is up 70% YoY. This pushes up the trailing 12 months profits by 12% odd.

Yes, 70% YoY growth in PAT and 12% inch up on TTM (trailing twelve month) basis. This is so surreal, but has a high probability. Suddenly, the market looks so much more attractive. And abundant liquidity chasing stocks calls for another BULL rally.

I am not over yet. The government is looking to divest and that happens only when sentiments are upbeat. The equity market therefore should rightfully so should not crash big time.

In this euphoria, the ultimate question remains - how far ahead has the market discounted this possibility? Once this quarter and the next are done away with, there may not be any base effect. Volume growth might continue, but top line may continue to disappoint due to price impacts and overhead costs. Has the market factored this?

Next, the CNBC-TV18 Boston Analytics Consumer Confidence Index in October showed a marginal up tick over September (Get the complete analysis of the index here - www.bostonanalytics.com/India_Watch/India_Watch.html ). But, was this the impact of the festive season as many indicators continue to remain sluggish.

Overall, the November-February period has historically delivered the best returns to investors. We are sitting on a sweet spot. How much the market has discounted this base factor impact will determine what kind of PEs Indian market will command. If history is an indication, the trading range for the benchmark indices has inched up and the base too, in case of a correction. Any correction is an opportunity to go long if you are a long term investor.

Disclosure: The author is not permitted to trade and/or invest into the equity market directly or indirectly, apart from investing (long only) in mutual fund products. His equity exposure is only to the extent of ESOPs granted by the employer.