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:

  1. Earnings are declining and stock prices are rising. I don’t know how long this will go on for.
  2. 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.
  3. 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.
  4. 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.
  5. It is unlikely that the markets will sustain @ the current levels until October 2015 which is when the next quarters earnings come out.
  6. 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.
  7. Fundamentally (besides valuations) things are looking good at macro level.
  8. 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.
  9. IT looks fairly valued – positive on large cap IT space with focus on companies with higher exposure to BFSI.

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