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Stocks

Charts: Nifty 50 and Nifty Junior Monthly Returns, PE and Earnings Growth

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Things surely have changed for the NIFTY from the last time we looked at the performance of the benchmark indices. Nifty recently hit an all-time high of 12,150.

Given its unexpected rise in the last 3-4 months, it’s interesting to see how the Nifty P/E (Price/Earnings) has changed and what the underlying growth has been.

In this post, we look at how the biggest 100 stocks by market capitalization in India, the Nifty 100 stocks, have grown, in the context of their Price-Earnings.

The Nifty 50 P/E reported by NSE considers standalone numbers of Nifty firms. To get a more holistic view we have compiled all the consolidated net profits of Nifty 100 firms along with their P/E.

The consolidated market cap of the Nifty 50 is around Rs 86,23,640 Crores. The Nifty 50 consolidated earnings on a trailing twelve months basis are Rs 3,49,204 Crores. This means a consolidated P/E of Nifty 50 at 24.7 (still rich, but relative moderation from the 28x P/E if only standalone numbers are considered).

Earnings growth for the last three quarters (on a trailing twelve-month basis) has been abysmal at negative 5% on TTM basis for Sep 2019. For that P/E of 24.7 to sustain, that E will need to see some serious growth soon.

Nifty 50

Chart shows Nifty 50 firms P/E plotted against their trailing twelve months earnings growth.

Nifty 50 Pe

Note: Six Stocks have been excluded from the charting due to abnormal returns.

  • Axis Bank reported 90x growth in earnings (Sep 2018 TTM profit Rs 49.54 Crores to Current TTM earnings stand at Rs 4509 Crs). An astounding 90x growth.
  • Bharati Airtel took a one-time loss of Rs 25,717 Crores this quarter due to supreme court ruling.
  • Grasim shows 3x growth because it reported Rs 1,450 Crs loss last September.
  • SBIN went from loss to profit of Rs 11,873 Crores.
  • Tata Motors took a hit of Rs 25,000 Crs in Dec-2018 for its JLR business. That has put the growth numbers off the charts.
  • Yes Bank went from profit to loss.

Note the major auto players like Maruti, Eichermotors and M&M are still richly valued despite their de-growth. Consensus seems to be we have to be turning a corner soon.

Titan, Hindustan Unilever, Asian Paints and Britannia are richly valued on account of being the “safe defensive” FMCG sector. Partly justified they are hobbling along at 10+% growth which makes them look like streaks of lightning compared to the rest.

Private banks like ICICI Bank, Kotak Bank, Indusind Bank, Hdfc Bank, Bajaj finance and Bajaj Finserv are all above 25x Earnings. ICICI Bank and Indusind Bank have been turnaround stories. The others because they are expected to keep delivering on their growth and probably raise fewer doubts about their books.

Most of the brute work in NIFTY earnings is done by PSUs like ONGC, NTPC, Coal India, IOC and BPCL.,Powergrid  and GAIL. They effectively contribute 26% of Nifty 50 earnings but only reap a modest 15 P/E valuation.

Nifty 50 Monthly Returns

Nifty 50 is expected to end the year on a decent note. For the current financial year Nifty 50 has given a return of 11%.

Nifty 50 Monthly returns November 2019

Nifty Next 50

The market cap of Nifty Next 50 is around Rs 22,99,013 Crs. The consolidated Nifty Next 50 earnings is at Rs 23,364 Crs on a TTM basis. Effectively Nifty next 50 is trading at 40.75 P/E.

Earnings growth of Nifty Junior is down by 66%. The major drop is due to consistent losses in Vodafone Idea (TTM loss of Rs 65,681 Crs). Nifty Junior has traded upward of 45x PE as late as 2017. On a consolidated basis a 41 PE is still a high point.

Nifty Next 50 Pe

Note: Five Stocks have been excluded from the chart due to abnormal returns.

  • Bank of Baroda went from net loss of Rs 1909 Crs in Sep 2018 to profit of 1,340 Crs. A 170% swing.
  • Vodafone idea with its rapidly-expanding losses would skew the chart.
  • Indigo TTM profit has grown by 3.62 times since Sep 2018.
  • Lupin went from loss to profit.
  • PNB continues to be loss-making.

Insurance and retail have seen the highest valuations. The FMCG/Retail segment like PGHH, Dabur, Colpal, Bergepaint, UBL, DMART, Page Industries Mcdowell-N are trading at significantly higher valuations. DMART trades at 100x earnings. Interesting to note insurance business getting valuations similar to FMCG. We don’t know how long that will sustain.

Nearly 21 out of 50 companies have a PE greater than 40 in Nifty Next 50. The median P/E for Nifty Next 50 is roughly 34.76.

Nifty Junior Monthly Returns

Nifty Next 50 has not lived up to the mark for the current financial year. The annual return of Nifty Junior stands at 1.3%. Below is the chart for Nifty Monthly Returns.

Nifty Junior Monthly Returns November 2019

 

Bottomline growth will only go so far. Keep in mind, as the base effect of the tax cut kicks in next year, without top-line growth, things could get ugly. On the other hand, Next 50 also has quite some catching up to do with its illustrious sibling. Things are likely to be very interesting over the next few quarters as earnings growth for the broader markets will set the direction.