Part III · Investing · M06A · week 4 · 14 h
Corporate events, earnings, sectors and factors
Results season and post-earnings drift; buybacks, demergers, open offers, IPOs and their evidence; promoter and insider disclosures as signals; valuing banks and cyclicals; factor investing in India.
Builds on M02 Statistics of returnsM03 Kelly and ruinM04 Systematic researchM06 Valuation
Prerequisites M06 (three-statement identities, the Gordon model, justified P/B (6.18), the value-driver formula, the forensic checklist), M02 (returns, OLS on return series), M03 · 3.2 (Kelly for a binary bet), M04 · 4.3 and 4.6 (momentum evidence and multiple testing). The event-study machinery (market model, abnormal returns, CAR and its -test) is self-contained in 6A.2. Two short passages point forward and can be read later: the option-implied event move of 6A.3 is derived in M09A · 9A.10, and M12 · 12.1–12.3 extends the event-study tests. Maths: conditional expectations of the normal distribution, OLS, geometric series. Time: ~14 hours (week 4): notes 7 h, problems 4 h, code 3 h. Primary texts: Bernard and Thomas (1989, 1990) on post-earnings-announcement drift; Ohlson (1995) on residual income; Mitchell and Pulvino (2001) on merger arbitrage; Ritter (1991) and Loughran and Ritter (1995) on IPOs; Fama and French (1993) and Agarwalla, Jacob and Varma (2013) for factors. The regulations themselves: SEBI LODR (2015), SAST (2011), PIT (2015), Buy-back (2018), Delisting (2021) and ICDR (2018), each as amended.
M06 valued a company in a steady state. Prices, though, move in jumps around dated events: a results release, a buyback, a demerger, an open offer, a merger, a listing, a short-seller's report. Each event has rules that fix who receives what and when, and those rules turn into exact arithmetic. This module does that arithmetic, asks what the evidence says about how prices react, and then covers the two valuation problems M06 left open: sectors whose book or cycle matters more than their DCF (banks, metals, oil marketers, IT services, consumer staples), and the systematic return factors that sit underneath every stock.
Labels: [V] means checked against a primary or reputable source (SEBI and exchange filings, company filings, journal pages, major outlets) on or near 6 Nov 2026. [S] means secondary only (press aggregators, law-firm and broker summaries, Yahoo Finance price history). Regulations change often; every rule below carries the date at which it was checked.
Learning outcomes
- Lay out the Indian results calendar under the LODR and PIT rules, choose the correct event day for an announcement, and compute a standardised unexpected earnings (SUE) score from a quarterly EPS history.
- Derive why naive earnings expectations produce post-earnings-announcement drift, state what the Bernard–Thomas evidence shows and why the drift has persisted, and measure drift on a panel with an event-study estimator: the market model, abnormal returns and the CAR -test (Proposition 6A.4), with the correction for clustered results days.
- Read the market's implied earnings-day move from option prices (derived in M09A · 9A.10) and compare it with the stock's history of results-day moves.
- Derive the EPS-accretion condition and the value-transfer condition for a buyback, and compute the after-tax payoff of tendering under India's three buyback tax regimes (to September 2024, October 2024 to March 2026, and from April 2026).
- Apportion cost basis in a demerger, read the special pre-open price discovery, and compute the payoff of tendering in an open offer and the discovered price in a reverse book building.
- Derive the implied completion probability and annualised return of a merger-arbitrage spread, and explain why its payoff resembles a short put.
- Derive Rock's winner's-curse explanation of IPO underpricing and summarise the evidence on initial and long-run IPO returns.
- Derive the residual-income model and the justified P/B of a bank, build ROE from NIM, fees, costs and credit cost, and relate gross NPA, net NPA and provision coverage exactly.
- Value a cyclical on normalised earnings, decompose IT-services growth into constant-currency and currency effects, and split consumer growth into volume and price.
- Build long–short factor returns from a cross-section with correct timing, test their premia, and read the Indian factor evidence with its volatility and crowding risks.
Sections ≈ 4 h of study
- Foundation 7 sections · ≈ 1 h 20 min
- Core 11 sections · ≈ 2 h 25 min
- Advanced 1 section · ≈ 15 min
- Learning outcomes Foundation 5′
- 6A.1 Results season in India: the information calendar Foundation 10′
- 6A.2 Earnings surprises and post-earnings-announcement drift Core 25′
- Figure Post-earnings drift by surprise group
- 6A.3 Implied earnings moves from options Core 5′
- 6A.4 Buybacks Core 15′
- 6A.5 Demergers Foundation 10′
- 6A.6 Open offers and delisting Core 10′
- 6A.7 Merger arbitrage Core 10′
- Figure Merger arbitrage: implied probability and the short put
- 6A.8 IPOs: book building, underpricing and the long run Foundation 10′
- 6A.9 Promoter and insider disclosures, pledges, bulk and block deals Foundation 10′
- 6A.10 Sector valuation I: banks and NBFCs Core 15′
- Figure Justified price-to-book for a bank
- 6A.11 Sector valuation II: cyclicals, IT services, consumer Core 10′
- 6A.12 Factor investing in India Advanced 15′
- 6A.13 Case studies Core 15′
- 6A.14 Reading a results filing on the day Foundation 20′
- 6A.15 Sector KPIs beyond banks: what moves each sector on results day Core 30′
- Summary of key results Foundation 15′
- Readings and resources Core 5′
- Facts that change Core 5′