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Charts & Analysis

Nifty EPS Growth Drops Off A Cliff

Something’s been happening with the Nifty EPS (Earnings Per Share) growth. Earnings growth, for the Nifty, has fallen off a cliff in the last one month. From the 15% EPS growth (year on year) we saw on May 20th, we’ve dropped to 9%.


One reason is that with dramatic rises and falls, the weightage of stocks is changing very fast. The weighted earnings will thus change composition. Last year, at the same time, EPS grew suddenly, so there is a base effect.

It has been nearly 6 years that our P/E has been much higher than the trailing EPS growth. Even if you “normalize” the P/E (today’s p/e pays for tomorrow’s performance, so let’s just phase shift the P/Es up by one year) you find that there is no meeting of the two lines for five years.


This is just educational, so don’t try to trade on it. When the red line goes above the blue line, that might be an opportunity to buy. But if five years was too long, then you might as well forget about it.

The composition of the Nifty has changed in the last year. With Siemens, Wipro, Sterlite and Sail going out, Indusind Bank, NMDC, Ultratech Cement and Lupin were in. The new stocks are more profitable (weighted by their free float) than the ones going out, but their collective weight in the index is about 3.5%, which may not impact earnings much.

  • mangoman says:

    Now since the market starting to fall people are panicking. Who all are panicking?
    1. Corrupt politicians
    2. Cheat corporate
    3. Mafia Real Estate
    4. Broker Media
    5. Finally the common man who is conned/induced into investment in Real Estate by the above 4
    In addition to this list, the so called financial analysts also panicking and started talking that new reforms will help stopping the fall. But in my mango opinion nothing can stop the upcoming catastrophe. Indian Government and its puppet RBI has exhausted all their options and are watching the crash of Rupee helplessly last week.
    If a finance minister come on Tv to assuage investor once in a year it is normal and thereby he can command come respect in the market place. But our finance minister come on TV every week whenever there is a fall of 20 points in the index. This is comical. Markets stopped responding to his gimmicks. Last week Raghuram Rajan was given the tough task of convincing markets. Poor Man. What can he do?
    Now coming back to reform stuff, I do not see any need for reform. What is needed in couple of percentage points of rise in Interest rates. A small hole in Real Estate Bubble. Some tightening of income tax rules and compliance. This is enough
    Some time the so-called experts will over think and over do things and make seemingly simple things complex. That is what happening now.
    Rupee / FII / Bond
    Simply put now RBI is in dilemma and effectively check mated. If you had observed carefully the rate cut lobby is shutting all its holes in the body last week after the spectacular fall of Rupee. Now Subbarao will give a punch in the face for whoever asks for a rate. RBI is almost knocked out by the vicious cycle of bond returns and Repo rate.
    If they reduce repo rate, FII who are already making loss will make further loss, and hence will go out of India.
    If they increase repo rate, it appears atleast 75% of top corporate honcho will go on indefinite strike. ( have you ever seen Tata begs for rate cut? I did not. That is the difference between real business man and reel business man
    RBI did not cut rates because they cannot cut now.
    Nifty Index View
    After Bernanke speech many would have observed huge FII selling in bonds and stocks. Stock selling started late but catching up fast now. Friday I saw huge sell figure from FII desk. Let us hope this continues. I am looking for some cheap puts and I think we can easily see 4500 – 4800 in nifty very soon. I mean as early as this year end.
    Real Estate Effect
    RBI may raise rate or not. Liquidity will dry and Real Estate sharks will run for cover. The tide is going to retreat and we will all see who is swimming naked. That will be interesting. Already I see many ‘ to let ‘ boards in many business establishments in Bangalore. Let us wait for the cleansing act and hope for a good beginning after the upcoming crash