Yesterday on Bloomberg I analyzed earnings trend for constituent companies of the S&P CNX Nifty. On year-on-year basis (Q2 2015 to Q2 2016) earnings showed a growth of 10.5%. In comparison, average stock prices went up by 5.13% during the same period*.
- Based on stock prices as on 1st October for each year.
Current PE Valuation of the Nifty = 22.02
Excel Calculation sheet here – 35 Nifty Company result
Key Points about Nifty Results Analysis:
- The analysis is based on the results of 34 out of 36 Nifty companies which have declared results so far.
- The analysis is a broad indication of earnings trends. We have excluded 2 companies from this analysis – Vedanta Limited and Cairn India due to uneven numbers on account of change in accounting policies /exceptional items.
- Earnings are improving while stock prices are showing a declining trend.
- Mostly when we are anticipating or going through a bull market, earnings tend to chase prices and so the valuations are always expensive.
- Prior to this quarter Nifty witnessed 4 consecutive quarters of negative earnings growth.
- On year-on-year basis there is an average growth of 10.6% in terms of profitability. And Nifty has gone up by 1.25 % during the same period.
- We expect the markets to rise by 10-15% over the next 6-9 month period.
- Valuation-wise, markets are expensive; trading at PE multiple of 22.02 on trailing basis. We believe this will change on account of improvement in corporate earnings over the rest of this FY.
- The broad analysis shows mixed bag of earnings from companies within a single sector like automobiles, IT, pharmaceuticals and banking – some players have done well while others have lagged behind.
- Fundamentally (besides valuations) things are looking good at macro level.
Summary of Nifty Analysis Q1 2016 Earnings:It is unlikely that the markets will sustain @ the current levels until October 2015 which is when the next quarters earnings come out. We expect a 7.5% correction in the markets over the next 3 months……..Read full analysis of previous quarter here.