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 Purchasing Managers Index (PMI)



The Purchasing managers index (PMI) is an economic indicator which tries to capture the business activity across the manufacturing and service sectors in the country. This is a survey based indicator where the respondents – usually the purchasing managers indicate their change in business perception with respect to the previous month. A separate survey is conducted for the service and the manufacturing sectors. The data from the survey is consolidated on to a single index. Typical areas covered in the survey include factors such as new orders, output, business expectations and employment amongst others.
The PMI number usually oscillates around 50. A reading above 50 indicates expansion and below 50 indicates a contraction in the economy. And a reading at 50 indicates no change in the economy.

 Budget


The Budget is an event during which the Ministry of Finance discusses the country’s finance in detail. The Finance Minister on behalf of the ministry makes a budget presentation to the entire country. During the budget, major policy announcements and economic reforms are announced which has an impact on various industries across the markets. Therefore the budget plays a very important role in the economy
To illustrate this further, one of the expectations for the budget (July 2014) was to increase the duties on cigarette. As expected, during the budget, the Finance Minister raised the duties on cigarette, and hence the prices of cigarettes were also increased. An increased cigarette price has a few implications:
  1. Increased cigarette prices discourage smokers from buying cigarettes (needless to say this is a debatable) and hence the profitability of the cigarette manufacturing companies such as ITC decreases. If the profitability decreases then investors may want to sell shares of ITC.
  2. If market participants start selling ITC, then the markets will come down because ITC is an index heavy weight.
In fact as a reaction to the budget announcement ITC traded 3.5% lower for this precise reason.
Budget is an annual event and it is announced during the last week of February. However under certain special circumstances such as a new government formation the budget announcement could be delayed.


 Corporate Earnings Announcement


This is perhaps one of the important events to which the stocks react. The listed companies (trading on stock exchange) are required to declare their earning numbers once in every quarter, also called the quarterly earning numbers. During an earnings announcement the corporate gives out details on various operational activities including..
  1. How much revenue the company has generated?
  2. How has the company managed its expense?
  3. How much money the company paid in terms of taxes and interest charges?
  4. What is the profitability during the quarter?
Besides some companies give an overview of what they expect from the upcoming quarters. This forecast is called the ‘corporate guidance’.
Invariably every quarter the first blue chip company to make the quarterly announcement is Infosys Limited. They also give out guidance regularly. Market participants keenly follow what Infosys has to say in terms of guidance as it has an overall impact on the markets.
The table below gives you an overview of the earning season in India:
Sl NoMonthsQuarterResult Announcement
01April to JuneQuarter 1 (Q1)1st week of July
02July to SeptemberQuarter 2 (Q2)1st week of Oct
03October to DecemberQuarter 3 (Q3)1st Week of Jan
04January to MarchQuarter 4 (Q4)1st Week of April
Every quarter when the company declares their earnings, the market participants match the earnings with their own expectation of how much the company should have earned. The market participant’s expectation is called the ‘street expectation’.
The stock price will react positively if the company’s earnings are better than the street expectation. On a similar logic, the stock price will react negatively if the actual numbers are below the street expectation.
If the street expectation and actual numbers match, more often than not the stock price tends to trade flat with a negative bias. This is mainly owing to fact that the company could not give any positive surprises.



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