Unravelling Post-Earnings Price Swings

Quarterly earnings often act as a litmus test for listed companies, setting the immediate tone for stock price direction. While strong numbers can trigger sharp rallies, even a minor miss versus Street expectations can spark hefty corrections. This piece unpacks how and why stock prices react in the days following earnings announcements — and what investors should watch out for in the post-result phase [EasyDNNnews:PaidContentStart]

Introduction
It’s earnings season – companies are reporting Quarterly Results, and investors eagerly await the numbers. Intuition suggests that good earnings news (higher profits, strong revenue growth) should send a stock up, while bad news should make it fall. Yet for many novice investors, market reaction may be puzzling; however, seasoned investors know it’s not that simple. Often, stocks decline despite good earnings and rally despite poor results. In this article, we explore why these seemingly counterintuitive reactions happen. We’ll dive into a couple of recent examples – Bharti Airtel and Zomato (now rebranded as Eternal) – examining how their stock prices moved around their Q1 FY2026 results. Along the way, we’ll uncover the role of market expectations, investor psychology, and insights from 50 years of academic research on the Post-Earnings Announcement Drift (PEAD) anomaly. By the end, you’ll understand how and why market reactions to earnings can defy expectations, and what factors might be at play. 

Bharti Airtel Q1 FY26 – When Good News Isn’t Good Enough 

Bharti Airtel, one of India’s telecom giants, delivered what looked like a stellar quarterly performance in Q1 FY2026. The company’s consolidated net profit jumped 57 per cent year-onyear to ₹7,422 crore, compared to ₹4,718 crore a year ago. Revenues also surged about 28 per cent YoY to ₹49,463 crore, reflecting strong growth in both its India and Africa operations. The quarter saw improvements in key metrics – for instance, average revenue per user (ARPU) climbed to ₹250, up from ₹211 in the year-ago quarter, indicating the company’s strategy of premium services was paying off. 

Given these robust numbers, one might expect Bharti Airtel’s stock to soar. Indeed, when the results were announced on August 5, 2025, the stock initially spiked in early trade. It hit an intraday high, buoyed by the headline of double-digit profit growth. However, that excitement was short-lived. By the end of the day, Bharti Airtel’s share price closed only about 0.8 per cent higher at ₹1,929.75, a muted gain considering the impressive earnings growth. What happened? 

The key is that ‘good news’ must be better than what the market expected. In Airtel’s case, despite the strong results, the profit figure actually missed analyst estimates. Analysts had pencilled in roughly an earning per share of ₹11.5 per share, against the reported `9.9 per share. So, there was a miss of around 10 per cent which, while high year-on-year, still fell short of the ‘whisper numbers’ on the Street. In other words, the earnings were good, but not good enough relative to expectations. 

Moreover, much of the positive performance was likely already anticipated and ‘priced in’ to the stock. Bharti’s shares had risen in the run-up to the results (in fact, they were trading over one per cent higher ahead of the earnings announcement), reflecting optimism about a strong quarter. Once the results came out largely in line with what informed investors foresaw, there was no big surprise to fuel further rally. 

Market experts often warn that beating the previous year’s numbers isn’t sufficient – companies must meet or beat market expectations to impress investors. If the results merely match what’s already expected, the ‘positive’ news has no incremental effect on valuation. In such cases, short-term traders who bought in anticipation of good results may engage in profit-booking (‘sell the news’), putting downward pressure on the stock. This dynamic was at play with Bharti Airtel. The stock had rallied on optimism, and once the numbers were out, many investors used the opportunity to lock in gains, a classic case of ‘buy the rumour, sell the news’. Thus, Bharti’s shares gave up most of their intraday gains, settling only marginally higher despite the strong earnings report. 

It’s worth noting that other subtleties can also dampen a reaction to good earnings. Sometimes, the quality of earnings and future outlook matter as much as the headline numbers. For instance, if a company’s profit beat came from a one-off gain or if its management issued cautious guidance for the next quarter, the market may react reservedly. We saw this happening in the case of India’s largest market cap company, Reliance Industries. The company had reported a 78 per cent year-on-year increase in its Q1FY26 consolidated net profit to ₹26,994 crore, compared to ₹15,138 crore in the year-ago period. The sharp increase in profit was primarily driven by a one-time gain from the sale of the company's stake in Asian Paints, which contributed to ₹8,924 crore in other income. The profit, attributable to the owners of the company, exceeded Street estimates of ₹22,069 crore. The company's revenue from operations rose 5.1 per cent to ₹2,43,632 crore versus ₹2,31,784 crore in the year-ago period. The company’s stronger-thanexpected Q1 earnings and upbeat coverage from top brokerages have done little to lift investor sentiment, with the energy-toretail giant’s shares sliding nearly 7 per cent since the results were announced. 

Eternal (Zomato) Q1 FY26 – Bad News with a Silver Lining
Now let’s turn to a converse scenario. Zomato, the popular food delivery company, recently rebranded itself as Eternal Ltd. and expanded into quick commerce (through its Blinkit acquisition). Eternal’s Q1 FY2026 earnings, at first blush, looked alarmingly bad: the company reported a 90 per cent year-on-year plunge in net profit, posting just ₹25 crore profit vs ₹253 crore in the same quarter last year. By typical standards, a 90 per cent profit collapse is dire news. Yet, when these results were released during market hours on July 21, 2025, the stock did the unthinkable – it rallied hard. Eternal’s share price surged over 7 per cent following the announcement, hitting an intraday high of around ₹274 on the NSE. It eventually closed the day with a solid gain of about 5 per cent at ₹271.20. The second day, it was up by another 10 per cent and in three trading sessions, it gained 25 per cent. In other words, despite a ghastly drop in profit, investors piled into the stock. Why would the market cheer a result that looks so poor on the surface? 

The answer: because not all ‘bad news’ is equally bad, and sometimes the story behind the numbers matters more than the numbers themselves. In Eternal’s case, the steep profit decline came largely from heavy investments in growing new business segments, particularly the quick-commerce arm (Blinkit) and related ‘going-out’ services. These investments drove up costs and crimped short-term profits, but they also fuelled extraordinary growth in revenue and order volumes. In fact, Eternal’s revenue from operations soared 70 per cent year-onyear to ₹7,167 crore in Q1 FY26, a blistering growth rate that far outpaced most tech companies. It was the 11th straight quarter of 50 per cent+ YoY revenue growth on an adjusted basis – evidence that the core business was scaling rapidly. Crucially this quarter marked a tipping point: for the first time, Blinkit’s quick commerce gross order value exceeded that of the traditional food delivery segment. In other words, the newer segment is now the largest driver of business, validating the company’s strategic pivot. 

What investors saw in Eternal’s report was a ‘silver lining’. They effectively overlooked the weakness in the bottom line (profit) and instead cheered the strength in the top-line growth and market expansion. The market’s focus was on high-growth segments, future scalability, and market share gains, rather than the one-quarter profit slump. Essentially, investors decided that the 90 per cent profit drop, caused by heavy spending, was a temporary trade-off for long-term growth. The company’s commentary reinforced this view: management highlighted improving metrics in the food delivery unit (adjusted EBITDA margins in food delivery improved year-on-year) and massive user growth in quick commerce (Blinkit’s net order value up 127 per cent YoY). Eternal’s CEO even noted that the slowdown in food delivery growth was likely bottoming out and guided for a respectable ~15 per cent+ growth going forward despite recent softness. 

The company is balancing growth with investment – a sign of confidence that Eternal can eventually turn scale into profits. 

Thus, a headline ‘bad’ earnings result (net profit down 90 per cent) was interpreted in a positive light because the context mattered. The stock’s rise reflected relief and enthusiasm that things weren’t as bad as they seemed – or at least that the pain was self-inflicted for a good cause (investment in growth). 

Moreover, expectations play a role here too: the market may have already anticipated a weak profit (perhaps even a loss) given Eternal’s aggressive expansion. In fact, Eternal’s profit of ₹25 crore, while tiny, was still a profit – the company stayed in the black, which might have been better than some pessimists feared. The strong revenue beat and sequential improvement in EBITDA (up ~60 per cent QoQ) signalled that the core business momentum was very robust. In short, the “bad news” had a big silver lining. The Eternal case demonstrates how investors will sometimes “look past” a bad headline number if deeper inside the earnings report they find evidence of future promise or if the result wasn’t as disastrous as expected. 

Going one step ahead, we tried to find the relation between profit growth of a company and its outperformance against Sensex after removing some outliers such as companies that have posted profit more than 75 per cent. 

The chart below illustrates how profit growth correlates with next-day outperformance relative to Sensex. 

The filtered scatter plot (excluding companies with profit growth above 75 per cent) shows a mildly negative relationship between profit growth and post-earnings outperformance versus Sensex. In other words, within this "normal" range, higher profit growth does not necessarily translate into stronger share price outperformance - if anything, the trend line suggests a slight decline in performance as profit growth increases. This indicates that the market may have already priced in earnings growth for many companies, or that other factors beyond profit growth (such as guidance, valuation, or sentiment) are driving post-result stock reactions. Overall, this highlights that investors shouldn't assume that higher earnings growth will automatically lead to better market performance, at least in the short term relative to the benchmark. 

The Role of Expectations, Sentiment, and "Surprise" in Stock Reactions What can we learn from the above? It underscores a crucial point: stock prices react not to earnings in isolation, but to earnings relative to expectations. It's all about the earnings surprise - whether results are better or worse than what was baked into the stock price. Bharti Airtel's double-digit profit growth wasn't a positive surprise because the market had expected even more; Eternal's large profit drop wasn't a negative surprise because the market was prepared for weak profitability and instead latched onto the unexpected strength in revenue. In essence, good news that's expected can disappoint, and bad news that's expected (or less bad than feared) can delight. 

Here are some key factors that drive these counterintuitive reactions: Market Expectations: Stock prices often run up or down before earnings in anticipation. If a company's results meet or only slightly beat the consensus expectations, there may be no further room for upside, and the stock can stall or fall. Reporting strong quarterly results is not enough to drive the stock. It has to meet the market expectations and beat its peers as well. 

For example, in the case of Tata Motors, we can observe how these surprises influenced its price performance. For instance, on January 29, 2025, the company reported earnings per share (EPS) of ₹14.87, missing the estimated EPS of ₹17.67 by -15.82 per cent, leading to a -7.37 per cent drop in its stock price on the day following the earnings release. This suggests that negative earnings surprises can trigger a market reaction that leads to a decline in stock value. Conversely, on February 2, 2024, Tata Motors reported EPS of ₹18.53, beating the estimated EPS of ₹11.83 by an impressive 56.64 per cent. This positive surprise resulted in a 5.46 per cent increase in the stock price on the day after the earnings release, demonstrating the positive sentiment that often follows strong earnings performance. This return has come after the stock has moved up by 14 per cent in five days prior to the earnings release. 

These examples indicate that earnings surprises—whether positive or negative—tend to cause significant price movements in the short term, with positive surprises usually resulting in upward price momentum and negative surprises leading to downward corrections. The market reacts swiftly to such surprises, adjusting stock prices in response to the updated perception of the company's future earnings potential. The element of surprise—positive or negative—is what moves the needle. 

'Buy the Rumour, Sell the News': A common market adage, this refers to investors bidding up a stock ahead of an expected good result, then selling once the news is out. This profit-taking can make a stock drop right after what appears to be a good earnings announcement. We saw this with Bharti Airtel, where traders likely booked profits when the earnings failed to beat the hype. In general, whenever you see a stock rally strongly before results, beware that even decent results might trigger some short-term selling pressure as early buyers cash out. 

Profit Quality and Future Guidance: When analysing quarterly earnings, sophisticated investors go beyond just the profit figures—they assess how the profit was achieved and what management is forecasting for the future. Profit quality is key: if earnings are inflated by one-time gains or if cash flows don't align with reported profits, it can raise concerns. Additionally, cautious forward guidance can prompt a negative market reaction, even when the reported numbers seem strong. 

For example, PG Electroplast reported a 14 per cent increase in revenue to ₹1,504 crore, however a 20 per cent year-on-year decline in consolidated net profit for Q1 FY26, amounting to ₹67 crore. This performance was impacted by early monsoon rains affecting seasonal sales of room air conditioners, leading 

to a subdued start to the year. Additionally, the company revised its FY26 guidance downward, projecting revenue growth of 17-19 per cent and net profit growth of 3-7 per cent, compared to previous estimates of 30.3 per cent and 39.2 per cent, respectively. This adjustment led to a sharp 35 per cent decline in its stock price over five days. 

Take HDFC Bank as an example: the bank reported a strong Q1 FY26 performance, with a 12.2 per cent year-on-year increase in net profit, reaching ₹17,090 crore, driven by income growth and treasury gains. A major contributor was the ₹9,128 crore gain from the sale of a portion of its stake in subsidiary HDB Financial Services, which bolstered the bank's balance sheet. However, while net interest income (NII) grew by 5.4 per cent, provisions for bad loans surged five-fold, reflecting a cautious approach amid a tough macroeconomic backdrop. Although the rise in provisions raised some concerns, analysts recognized the bank's proactive risk management. HDFC Bank also announced its first-ever 1:1 bonus issue and a special ₹5 per share interim dividend, underscoring its commitment to delivering shareholder value. Despite some challenges related to asset quality, the bank's strategic sale and strong operational performance point to promising long-term growth, reinforcing its positive market positioning. This resulted in a positive market reaction and shares of the bank were up by 2.2 per cent in the following trading session. 

The key lessons for retail investors are: 

• Earnings Context Matters. Always consider the context of an earnings announcement – what was expected, what the stock has done leading up to it, and what the company’s future outlook is. The market is a complex weighing mechanism of all these factors, not a simple reaction to a single number.
• Don’t take headline figures at face value. Read the fine print or trusted analysis: maybe margins improved, maybe order growth is fantastic, maybe the profit beat was due to a tax credit – such details explain why a stock moves contrary to the headline. In our case studies, understanding why Bharti’s profit missed estimates or why Eternal’s revenue growth excited investors made their stock moves sensible.
• Recognise that short-term price moves can be noisy. A drop after good earnings doesn’t automatically mean the company is doomed; a rise after bad earnings doesn’t mean the company is a miracle – it’s about the expectations game and often the move can be temporary or part of a longer adjustment. If you’re investing for the long term, focus on whether the earnings fundamentally strengthen or weaken the company’s prospects. If they do, short-term market misreactions could even present opportunities (as PEAD research implies).  
• Be aware of your own biases. It’s easy to get anchored on your expectations or to react emotionally. If you find yourself surprised by a market reaction, ask: 'What might others be seeing that I missed? Was my expectation off, or is the market missing something that will correct over time?' This mindset can help you make more rational decisions rather than following the crowd. 
   

It's crucial to remember that stocks are inherently forwardlooking, while quarterly results reflect past performance. What really matters is how the results signal the company's future trajectory. 

Valuation and Sentiment Backdrop: Sometimes a stock's valuation is so high that even good results aren't enough to justify further price increase, leading to a correction. In other cases, broad market sentiment can dominate - if overall markets are bearish or if there's a sector-wide issue, a single company's good results might get overshadowed. Similarly, in a euphoric environment, a mildly bad report might be brushed off as investors remain optimistic. Essentially, the reaction can be amplified or muted by the prevailing market mood and how much optimism or pessimism is already priced into the stock. 

Following its IPO, NSDL's stock price experienced a significant rally. When its first post-IPO quarterly results were announced, they showed a healthy rise in net profit of 15 per cent and stronger operating profit margins of 30 per cent increase of 600 basis points from last year same quarter. However, the stock saw a correction. The reason? Its high valuation (with a P/E ratio around 70-77) had already priced in high growth expectations. The market saw the results as good, but not good enough to justify the existing valuation, leading to profit booking and a subsequent correction. 

This is a classic example of 'buy the rumour, sell the news' where the price surge ahead of the results was driven by optimism that wasn't fully validated by the numbers. 

Behavioural Factors: Investor psychology plays a big role. For example, a well-documented bias known as the disposition effect means that investors tend to sell stocks in which they have gains (to 'lock in' profit) and hold onto stocks in which they have losses (hoping to break even). This behaviour can cause underreaction to earnings news. How? If a company announces great earnings and many shareholders are sitting on large gains, a bunch of them may sell (putting downward pressure on the price), preventing the stock from immediately reflecting all the good news. Conversely, if a company announces poor earnings but most shareholders are at a loss on the stock, they might not sell (avoiding crystallising a loss), so the stock doesn’t drop as much as it 'should' right away. Research confirms this effect: stocks with a lot of investors holding unrealised gains tend to underreact to positive news, while those with many holding losses underreact to negative news, leading to a slower price move in the expected direction. In simpler terms, investor reluctance to trade (either selling winners or cutting losers) can temporarily blunt the market’s reaction to earnings announcements. 

'Not All Surprises are Created Equal': The market also distinguishes between the components of an earnings surprise. A company might miss on earnings per share but beat on revenue (or vice versa), and the stock reaction will depend on which metric investors deem more indicative of future health. For instance, a profit miss driven by a higher tax provision might be forgiven if sales were strong; a revenue miss might be shrugged off if margins improved unexpectedly. In Eternal’s case, the 'surprise' was that revenue and user growth were spectacular, even though profit plunged – and the market cared more about the revenue surprise. So, it’s crucial to identify what aspect of the earnings report the market is focusing on. 

The seemingly odd behaviours we’ve discussed are not just anecdotal – they’re backed by decades of financial research. In fact, the tendency for stock prices to keep moving after an earnings announcement (often in the direction of the surprise) is so well-known that it has a name: Post-Earnings Announcement Drift (PEAD). This is a persistent anomaly where stocks that reported very good earnings tend to drift upward for weeks or months after the announcement, while stocks with very bad earnings drift downward, on average. This happens even after the immediate 'jump' or 'drop' on earnings day, suggesting that the market, as a whole, adjusts to earnings news gradually rather than instantaneously. 

Why is this a big deal? Because in an ideal efficient market, once a company announces its earnings, all investors should quickly incorporate that information and price the stock correctly within minutes or hours. There should be no easy 'free lunch' trading strategy based on public earnings data. Yet PEAD shows that if you sorted stocks by their earnings surprises – say, went long the top 10 per cent of companies that massively beat expectations and short the bottom 10 per cent that badly missed – you could historically earn significant abnormal returns beyond the market average. Multiple studies over the past 50 years have found this strategy profitable, with one review paper finding excess returns ranging from about 2.6 per cent up to 9.4 per cent per quarter for such a long-short portfolio. That is an eye-opening result, indicating that the market isn’t fully efficient with respect to earnings news. This phenomenon 'stands at odds with the efficient market hypothesis which assumes all information is instantaneously reflected in stock prices'. 

Conclusion: Navigating the 'Surprise'
As a retail investor, witnessing their stock fall right after a solid earnings beat or rise after a big earnings miss can be baffling and stressful. But as we’ve explored, there are logical reasons for these outcomes. Markets are forward-looking and driven by expectations – it’s not the quality of the earnings in isolation, but how those earnings compare to what was expected and what they signal about the future. A 'good' result might already be baked into the price (or even prove lower than hoped), leading to disappointment or profit-taking. A 'bad' result might contain green shoots or be less awful than feared, leading to relief and buying. 

There are also behavioural and structural dynamics that make market reactions imperfect. Investors may underreact initially due to biases or processing delays, causing price adjustments to stretch out over time (the essence of PEAD). Some investors may overreact due to emotion or short-term trading motives, causing knee-jerk moves that later stabilise. Understanding these dynamics can prevent you from panic-selling or exuberantly buying at the wrong time. For example, if you know a stock’s rally pre-earnings likely reflects high expectations, you won’t be shocked if it 'sells the news' even on decent results. If you see a stock pop on seemingly bad news, you might dig deeper to see the positive aspects that others noticed. 

In conclusion, the phenomenon of stocks falling on good earnings or rising on bad earnings is a product of the market’s complex psychology and mechanics. What appears counterintuitive at first usually makes sense once you consider expectations, surprises, and investor behaviour. The cases of Bharti Airtel and Eternal (Zomato) show that the narrative around earnings can matter more than the numbers alone – good news needs to exceed the hype, and bad news can be overcome by a compelling growth story. And as 50 years of PEAD research reminds us, even after the initial drama, stocks often continue to move as investors gradually price in the news. So the next time you see a perplexing market reaction, take a step back and think about the earnings puzzle pieces: Were expectations too high or too low? Is there profit-taking at play? Are there future clues in the commentary? With a bit of analysis, you’ll often find the method in the madness. And armed with this understanding, you’ll be better prepared to navigate the earnings season – without losing your cool when the market 'zigs' when you thought it would 'zag'. 

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