The Hindu Business Line : It depends, maybe, perhaps, if…

Remember that old joke about weather forecasting? Everyone has heard at least one version of it. My grandfather routinely coughed up one, amidst clouds of snuff (N. R. Pattanam Podi — Made in Madras) each night as we watched the news on Doordarshan.

“Tomorrow, according to our analysis and satellite information we are receiving, there is high likelihood of it raining or not raining in various parts of south, central and north Kerala.”

We would all laugh even if it we were hearing it for the twentieth time (sometimes in the same day.)

In search of a direction

Analyst interpretations of market news or sectoral trends are sometimes like that. Often, I have noticed in the print, TV and online media, their analysis can be both meticulous in detail, yet ambiguous in direction.

South and North Kerala. May or may not rain.

I am not entirely surprised at this though. In today’s market, who really knows how things work? Like I said in my column last week, sometimes it seems that the very thing that pushed up the Sensex last week is pulling it down this week. And, then again, pushing it up the next.

“Of course, the weakness in other emerging markets is actually driving more investments into India because the India story is really robust” they will say on a day when the Sensex hits the all-time high. “Alas! What to do! Negative global cues has really hit the Sensex hard today!” will be what the same pundits will say when the Sensex lets loose a bloody massacre a day later.

Making predictions

This reminds me, not a little, of the sort of predictions I routinely made after exams when I sat down to discuss things with dad. Dad is a real results guy who demanded an accurate estimate of marks after each exam and probability distributions for overall percentage and class and school ranks. (What do you expect from a career accountant?)

“You said you would top the school Sidin!” he’d say.

“Well if you take out languages and science I actually have. Broadly. Without maths. Almost.” I would clarify.

Can’t blame sub-primes for that one.

On a relaxed Diwali morning, as I read through comments by experts in our newspapers, I was quite amused by the statements they made. One broker said that in the coming months the “outlook remains robust” but does not mean “we can keep expecting the returns as we have seen recently”. Another said that he expected regular inflows to resume once “the dust settled”. I must share a most interesting analyst commentary I read earlier this year. I do not have the exact details as the laptop I had it saved on one day decided that it saw no point in its existential existence and blew up in the middle of a presentation on “Reliable Information Technology Systems.”

But the broad details were like this. A leading video game developer had announced delays in the launch of a highly anticipated game for a newly-released video gaming console. Immediately, analysts began giving their perspective on how this would affect the stocks of everyone involved: Game developer, console maker and software and hardware retailer.

A different logic

At first glance, it would seem that this was bad news. Lower sales everywhere. Heads rolling. And so on. But not to the eyes of the expert analyst. One of them said that this was actually GOOD for all three parties. Let me try to quickly outline his logic.

The console was new. Therefore, adoption by consumers was still low. By the time the game is out after delays, more people would have bought the console, which means greater initial offtake of software. This is good for developer and retailer. The delay also meant that the developer got time to create a better product and even wait and see how other games worked on the new machine.

Also the delay would make the game miss the important Christmas window. This normally means time for the developer to start firing the needless members of staff like the drivers and office help and fresh MBAs and bring down cost. But analysts said that this would make the game appear at a less cluttered time for game buyers. Therefore, even this could push up sales with less competition from other titles. So it was not all bad according to the analysts.

This sounded like an extremely detailed analysis to me with educated insight into how the market worked end to end.

But the punchline came when an analyst was asked how he felt the stocks of the developer would do overall.

“Depends really. It has the potential to do well. But I would wait and watch to see if there was a downturn waiting to happen. So, overall, I am bullish but in a very conservative way. So the stock will go up. Or even down. What do I know? I still get paid at then end of this month. Stop looking at me like that.”

May or may not rain. South, Central or North Kerala.

(The author, an alumnus of IIM-A, was a management consultant before quitting to work as a freelance writer, author and general handyman. He blogs at www.whatay.com)

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