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Charts & Analysis

Nifty EPS at 237, 6.76% EPS growth, P/E 23

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%!).

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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: