As data points go this is disappointing. The Nifty Price to Earnings ratio (P/E) is at 23, the Nifty Earnings Per Share is 237 which is a 6.76% growth from last year.
- On Sep 3, 2009 the Nifty EPS was 222, the Nifty was at 4,600.
- On Sep 4, 2008, it was 236. In two years, we have gone NOWHERE on earnings. The Nifty, on the same day was at 4,447 – we are about 25% higher today on Nifty value at 5500 but the EPS remains the same.
- On Sep 3, 2007 the Nifty EPS was at 220, and the Nifty at 4400.
On all the four data points from 2007, the Nifty P/E has been above 18. P/E is supposed to reflect future growth – and the growth we have had on the top 50 stock earnings in the last three years has been about 7% – that is a non-compounded gain of about 2.5% per year.
Note: Our recent GDP figures showed 8.8% growth, and that’s in inflation adjusted terms (real was over 25%!).
Also, what is of worry is the divergence of P/E from EPS growth. It could of course diverge more, and results of the last quarter were nowhere close to good enough, but the P/E continuing to increase is a sign we’re building into the bubble.
They say at any time you shouldn’t try to predict all three things – direction, intensity and timing of a move. That is – I can say “We will go down big time”, or “The stock market will go up next week” or “In the next few days there will be a huge increase in volatility in the market”. That’s so you can cover your ass. So I’ll CMA and say I don’t like this data, but damn if it doesn’t improve I don’t see us going up a lot. But P/Es must cross 25 to reach bubble territory.
Past articles on the Nifty P/E:
- Aug 2010 – Nifty EPS growth at 6.76%.
- April 2010 – Nifty P/E and EPS growth (Video)
- Dec 2009 – Nifty P/E and EPS growth, still insane
- May 2009 – GDP up 6.7% but Nifty EPS down 9%
- Aug 2008 – Nifty EPS 237, EPS Growth 8%
- Jan 2008 – Nifty P/E is 27
- EPS and P/E Explained
