Nifty PE after all earnings have been declared

(Krishnaraj) #61

Thanks Lotus,

A nice piece worth reading. I am a full time and a self styled value investor, and have been through a few business cycles.

I observe that a high proportion of investors look to economic prospects to derive the confidence that their investments are full of promise. Concurrently the economics of the business underlying the investment is paid short shrift or overlaid with such strong national economic prospects that even an otherwise average business looks good. This seems to me like the Mullah Nasruddin story who was said to have taken the help of a distant candle when he won the challenge of staying outside on a chilly night.

I say this because Corporate Profits (of about 40,000 firms which comprise all listed and prominent unlisted) as a %age of GDP was just 5.5% during the best of times and came down to under 3.4%. This will be practically be a small trickle by the time it waters down to the portfolio. So inductively deriving prospects of high GDP growth directly to an optimistic view on price of a stock seems like using the candle to feel warm.

(Chandragupta) #62

Even after discounting the known anti-BJP bias of the author, the article is inconsistent and unconvincing at best. Nearly every point made by the author can be countered. Let’s try:

  1. After the great recession of 2008-09, economy bottomed out at 6.9%.

Thanks to a misguided stimulus. Led to devastating inflation for which we paid the price right at least till 2014 if not beyond. When inflation strikes, it is the poor who are hurt the most. Nothing to celebrate about ‘UPA bottom being higher than BJP bottom’ :grinning:

  1. The data will be revised downwards.

Prediction, so allow me to ignore it. Time will tell. In any case, he himself says 2018 will be much better than 2017.

  1. Three / four paragraphs are devoted to ‘there is no increase in global productivity after electricity & IC engine’.

But then he counters his own arguments by saying this does not apply to India. We can get huge productivity gains just by catching up with the West. I agree with this latter part.

  1. India created no new star sectors in the 2010s. No country has grown strongly without export growth.

Many sectors are growing – e-Commerce, logistics, transport, domestic defence, finance, aviation, etc. Export growth helps, but India also has a large domestic market, something with most other economies (with the exception of China) don’t. In India, economies of scale are possible even by just serving the domestic market, so dependency on exports is lower. And developed economies have also started recovering.

  1. A long wish list in the last para which starts with ‘…far better infrastructure and logistics’ and ends with ‘…and major reforms in the markets for land, labour and capital’. Then he says “These are not on the horizon”.

In all of these, we are better off now than before. Improvement is a journey, so one can always make an argument that things could have been even better. They could. But direction is more important than speed.

A problem with economists is that they think GDP is everything. People getting toilets for the first time, house wives graduating from stoves to LPG, youth acquiring skills under Skill Development initiatives, sharp reduction in infant mortality, widespread internet penetration in rural areas, availability of clean water and improved health care – all of these matter for individuals but does not figure anywhere on an economist’s radar because they cannot be correlated directly to “output”, especially of the organized sector. In fact, not much is being written about Skill Development in the mainstream media but I understand it is doing very well. Combination of Skill Development + MUDRA is probably keeping unorganized sector buoyant.

Another irony of the Keynesian economics is that savings are “GDP negative”. Huge savings that we have seen in nearly every field like defence, railways, power, internal security etc. – simply due to better governance and absence of high level corruption are all GDP negative.

I always take GDP numbers (whether good or bad) with a pinch of salt. To the extent that we are hostage to global situation, nothing can be done about it. Even domestically, there is no doubt that there is tremendous scope for improvement. But still, I don’t find anyone around me who is worse off now than he was 3 years back. That’s enough for my stock investing. Debating whether this is thumbs up or bottoms down is a matter of semantics, like whether the glass is half full or half empty. Unless the economy is at one of the two extremes – and I believe it is not - macros can be safely ignored.

I am therefore focusing only on company fundamentals.

(Lotus) #63

Dear Chardra

Good counter argument.

No doubt, we are better in many ways nationally compared to previous 5 years or so.

The big picture is as follows:

Global Defalation / slow growth in developed countries / govt creating money out of thin air


Reforms in national level / Indian mass moving to middle class

Only when people have money, they spend; money comes from wages.
Unless unemployment situation is tackled, Indian situation is not going to change.

Agree on:

  1. Take GDP numbers with pinch of salt.
  2. Few industries will grow better then economy.
  3. Focus on fundamentals of selected companies.

(Chandragupta) #64

Agreed, employment is the key to prosperity.

(Gaurav Agarwal) #65

The EPS of Nifty has shown a sudden spike from 400 on 01-Feb-2018 to 413 on 02-Feb-18.


A sudden spike in one day of 13 points seems rather unusual to me.

Can any member illuminate, the reason.


May be they update EPS at month end. All Nifty results in Jan were pretty impressive.


PE at consolidated earning level have have fallen to 23.48

(Krishnaraj) #68

Ambuja Cements will declare its results on Feb 20 - the last one to do so, and subsequently I will share the Nifty PE computation.

Warm regards,

(Bheeshma Sanghani, PhD) #69

Thanks @diffsoft, looking forward to the result.

(Krishnaraj) #70


Attached is the Nifty trailing PE (weighted) for quarter ending December 2017 after results of all firms have been declared. Nifty PE Q3 FY18 for valupickr.xlsx (87.3 KB)


  1. The Nifty trailing PE as of 20/02/2018 was 22.45 vs 22.91 as on 14/11/2017. Thus earnings have grown more than valuations, unlike last quarter. About the same time last year the PE ratio was 20.80 which means valuations grew ~ 10% faster than earnings compared to last year.

  2. For the quarter ending December 2017 unweighted PAT grew by 18% over December 2016, but weighted PAT grew faster by 24.1%. This was partly driven by heavily weighted companies like HDFC, Infosys earning exceptional income and by jump in Reliance PAT.

  3. For the trailing 12 months ending December 2017, weighted PAT grew 7.75% over trailing 12 months ending June 2017.

  4. Nifty EPS computed as Nifty / Nifty PE works out to be 461.47

Feel free to ask any queries.

Warm regards,

(srikanthg) #71

nifty has corrected by more than 5%, so do we need to consider market cap based on moving avg, otherwise it looks like pe has corrected rather than earnings catchup.

(paraa) #72

Great work as always.I am disappointed by the EPS growth ,clearly we have to go long way for the earnings to catch up with valuations.

(Yogesh Sane) #73

Excellent work as always.

Good to see that earnings are growing 24% but when I calculated contribution of each member to this 24% number, I got some interesting numbers. Here is what I found

Stocks Contribution to Growth
Housing Development Finance Corpn. Ltd. 11.24%
Reliance Industries Ltd. 5.71%
Infosys Ltd. 2.98%
H D F C Bank Ltd. 2.91%
Mahindra & Mahindra Ltd. 1.59%
Indian Oil Corpn. Ltd. 1.51%
I T C Ltd. 0.94%
Larsen & Toubro Ltd. 0.82%
Tata Motors Ltd. 0.75%
Tata Steel Ltd. 0.54%
Kotak Mahindra Bank Ltd. 0.48%
Oil & Natural Gas Corpn. Ltd. 0.35%
Hindustan Unilever Ltd. 0.26%
Indiabulls Housing Finance Ltd. 0.17%
Indusind Bank Ltd. 0.15%
Axis Bank Ltd. 0.13%
Yes Bank Ltd. 0.12%
Hindustan Petroleum Corpn. Ltd. 0.10%
G A I L (India) Ltd. 0.08%
Bajaj Finance Ltd. 0.08%
Maruti Suzuki India Ltd. 0.06%
Adani Ports & Special Economic Zone Ltd. 0.04%
Coal India Ltd. 0.04%
Power Grid Corpn. Of India Ltd. 0.04%
Asian Paints Ltd. 0.04%
Ambuja Cements Ltd. 0.04%
Eicher Motors Ltd. 0.03%
Tech Mahindra Ltd. 0.03%
U P L Ltd. 0.03%
Zee Entertainment Enterprises Ltd. 0.02%
Hindalco Industries Ltd. 0.02%
Bajaj Auto Ltd. 0.02%
Hero Motocorp Ltd. 0.01%
Bosch Ltd. 0.01%
Cipla Ltd. 0.01%
H C L Technologies Ltd. 0.01%
Aurobindo Pharma Ltd. 0.00%
Bharti Infratel Ltd. -0.01%
Bharat Petroleum Corpn. Ltd. -0.04%
Vedanta Ltd. -0.05%
Dr. Reddy’S Laboratories Ltd. -0.05%
N T P C Ltd. -0.05%
Wipro Ltd. -0.06%
Ultratech Cement Ltd. -0.06%
Lupin Ltd. -0.08%
Bharti Airtel Ltd. -0.10%
Tata Consultancy Services Ltd. -0.35%
Sun Pharmaceutical Inds. Ltd. -0.64%
I C I C I Bank Ltd. -1.48%
State Bank Of India -4.28%
Total 24.09%

In Short, HDFC alone contributed almost half of total growth due to an exceptional item (sales of sub). Infosys also reported strong growth due to one-time tax refunds. Excluding that, overall growth will look worse than Q2.

I think it is more meaningful to calculate growth numbers excluding exceptional items. @diffsoft, if this is not too much work, will you be able to calculate the growth numbers excluding exceptional items?


Thanks for the useful data! Since it is weighted contribution of earnings growth, It would be great if 2 columns are added prior to the weighted growth in earnings - raw growth in earnings and weight in Nifty. The weighted growth in earnings would be the product of these two columns.

(Krishnaraj) #75

To get a precise figure (which will still be an estimate), one will have to read through all the results one by one. But this quarter like you rightly pointed out, 3 firms - HDFC, Infosys and Mahindra and Mahindra have a big bump in their PAT due to one-offs.

  1. HDFC made one time profits of Rs 52,503 million due to sale of its shares in Standard Life
  2. Infosys said that some amount of tax it kept aside to pay for earlier years need not be paid. This amounts to Rs 14,232 million, now counted as profits, inflating PAT. This was not presented as an exceptional item but as a reversal in “Current Tax”.
  3. Mahindra & Mahindra recorded an exceptional item of Rs 26,690 million as PAT, which is for the most part, a pure accounting entry arising out of new accounting rules. These rules require its investment in Mahindra Logistics, that became a subsidiary after its IPO, will be measured at market value. So the difference between cost and market value (shares sold and also on balance held) is shown as an exceptional gain.

These amount to Rs 93,425 million or about 9% of Nifty PAT unweighted.

If these were not counted, Nifty PAT growth would have been just 6.3% (unweighted) this quarter vs year ago. So that’s a big skew to take into account making it an exceptional quarter :grin:. A very important observation in any case!

Thank you.

(Krishnaraj) #76

I am not sure I understood the question correctly. Market Cap is weighted when computing Nifty PE.


But these should get balanced out due to lower profits by Tata Motors, SBI, Sun Pharma etc because of one time taxes/provisions/costs etc which are non-recurring

(srikanthg) #78

What i meant is per your calculation nifty pe is calculated based on a point of time marketcap ie 20 feb in this case, would the calculated pe varies significantly if market falls on 20 feb and recovERS back on 22feb ?
Is it possible to calculate market cap of the nifty companies based over a period say a month or so

(Krishnaraj) #79

:slight_smile: interesting, because it leads us to the question - how to decide what is one time and what is recurring? We need objective standards that are not subject to one’s opinion or judgement. The best way to do that, in any case for me, is to use accounting standards with a conservative outlook.

I did look at Tata Motors, Sun Pharma and SBI. I did not see any exceptional items except for Sun Pharma (Exceptional Tax items) for negative Rs 5,000 million. This is too small (5 - 6% of total positive exceptionals) and does not balance out the positive others. Besides this amount is a straight hit to the bottom line because 20% of the advance taxes paid for future years comes to naught as tax rates get reduced (from 35% to 21%).

I did not see any such exceptionals for TaMo and SBI, please point out.

But I do think we should not take exceptions to the exceptional items because some firms will always have exceptionals.

You may calculate the PE for any day but the E will be that of 12 months ending Dec 2017, till you get results for March 2018, so it won’t change. Just the P will change, and you can compute PE for any day with P changing and E constant for 3 months.

Ideally, and probably uselessly, if you get earnings for every company every day then trailing PE computation will be real time :grin:


Thanks for pointing out my folly. I am not too good at reading P&L and BS.

What I meant what that if SBI and TAMO is a buy at current levels (that is what I hear from veteran investors), it is despite of PE. So should we not exclude this or normalize this for calculation.

As ultimate exercise is to find how Nifty is valued so that one can make investment decisions.

In that sense I mentioned that exceptional items may be doing a balancing act at gross level.