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:

  1. The analysis is based on the results of 34 out of 36 Nifty companies which have declared results so far.
  2. 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.
  3. Earnings are improving while stock prices are showing a declining trend.
  4. Mostly when we are anticipating or going through a bull market, earnings tend to chase prices and so the valuations are always expensive.
  5. Prior to this quarter Nifty witnessed 4 consecutive quarters of negative earnings growth.
  6. 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.
  7. We expect the markets to rise by 10-15% over the next 6-9 month period.
  8. 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.
  9. 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.
  10. 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.