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Charts & Analysis

Nifty EPS Growth Charts, Sep 2011

Following up after @kirandhanwada tweeted asking for the latest in EPS and EPS Growth figures, after my post around the same time last year:

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 Sep 2, 2011, the Nifty P/E is 18.19 which corresponds to a Nifty EPS of 277. This translates to a remarkable 16.56% growth in the year, which means we have finally seen some recovery in the Nifty EPS.

Nifty P/E vs. EPS growth

(Note however that these are figures that are standalone EPS – the exchange doesn’t release the consolidated aggregate P/E for the Nifty, which makes comparison a difficult thing)

While this is good note that the EPS growth over the last four years is:

  • From 2007 (Four years): 5.9% annualized
  • From 2008 (Three years): 5.5% annualized
  • From 2009 (Two years): 11.7% annualized

The problem really is this: The Indian GDP has gone up a nominal 81% in that time, from 43 lakh cr. to 78 lakh cr. which is about 16% per year. Per capita income has gone up from 35K to 55K, an annualized growth of 12%.  EPS at the Nifty level has gone up just half that.

Normalized P/E

People say P/E discounts the future, not the past. So if we are at 18 today, we are likely to grow 18% of more in the next year or so. That means that in the past our P/E should have reflected our current growth? Why not plot Nifty P/E one year ago, to the EPS growth today?

image

Answer: the Nifty P/E doesn’t have a frikking clue.

We might grow 25% next year, and we could still have a very low P/E. Or, we could grow at 5% next year, and then the current 18 will sound high.

My view: increasing interest costs will hurt corporates and we will see a slowdown in their earnings. around 20 of the 50 Nifty companies showed an EPS contraction in the Apr-Jun quarter compared to a year ago. Subsequently interest rates have been raised even higher. This is not going to be a smooth year ahead.

Also see: My video on Nifty P/E and EPS growth

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