The number Game

Ask your self a very simple question... If the stock price of a company rises from Rs 1 and becomes 2, what is the percentage increase...? and if the price rises from Rs 100 and becomes 101, then again its a Rs 1 rise but what is the percentage increase this time...?  

I think all of you must have got it right.. Its 100% in the former case and 1% in the later.  But most of us misunderstand this simple logic tend to over react to the rise in stock prices of US financial services firm. 

Yesterday I saw Citigroup 30% up, Wells Fargo by over 25% and same with over top banks and financial institutions. So the DJIA was up by a good 3%. But is this something to cherish. Citigroup has risen by some mere 30-40 cents and same is the case with most of the others.  But still they are more than 90% down from their highs.. The reason of this rise as Bloomberg says is because of a better than expected result of Wells Fargo (that was mainly on account of some restructuring).

So in reality nothing great has happened. Its again the same euphemistic phase the stocks are entering. Reliance Industrial Infra has rallied by over 165% in last 4 trading sessions, Tata steel up by over 55% in 1 month (earnings growth would never be even 20% of this). The market pundits are saying Nifty to reach 4100/4500,...

I would again say as earlier that numbers are sometimes very miss leading and so there is nothing to get excited about the US financials rally and be over cautious. As Mr. Buffet says that "Be Greedy when others are fearful and fearful when others are greedy" and over the last few weeks the market has became a place of greediness and everybody is of the mood that the worst is finally over... 

A IIP figure of -1.5%, a almost negative inflation which is leading us towards a different and difficult to fight macroeconomic problem (liquidity trap: see my earlier blog for details)

So as per contrarian view I believe the worst is far from being over.. the party will begin once the 4Q results start coming in form 15th of April... The real use of numbers will come then...