Yesterday on ET Now – analyzed earnings trend for constituent companies of the S&P CNX Nifty. On Year-on-Year basis (Q1 2015 to Q1 2016) earnings showed a decline of ~1.4%. In comparison, stock prices went up by over 13% during the last 12 month period.
Current PE Valuation of the Nifty = 23.10
Excel Calculation sheet here – 45 Nifty Company results
Key Points about Nifty Results Analysis:
- Earnings are declining and stock prices are rising. I don’t know how long this will go on for.
- Mostly when we are anticipating or going through a bull market, earnings tend to chase prices and so the valuations are always expensive. You could discount that to a certain extent but for the last 2 quarters something odd has happened where markets are getting disconnected completely from earnings and moving purely on expectations.
- Based on all companies which have declared earnings so far, there is an overall de-growth of ~1.4% from last quarter to now in terms of profitability. And Nifty has gone up by ~14 % during the same period.
- The analysis is a broad indication of earnings trends. We have excluded 3 companies from this analysis – Vedanta , Cairn and Tata Steel due to uneven numbers on account of change in accounting policies /exceptional items.
- It is unlikely that the markets will sustain @ the current levels until October 2015 which is when the next quarters earnings come out.
- Markets have never sustained at levels above 23 for more than a few weeks. We expect a 7.5% correction in the markets over the next 3 months.
- Fundamentally (besides valuations) things are looking good at macro level.
- The broad analysis shows a very mixed bag of earnings from companies within a single sector like automobiles, pharmaceuticals and banking – some players have done well while others have lagged behind.
- IT looks fairly valued – positive on large cap IT space with focus on companies with higher exposure to BFSI.
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