Nifty PE after all earnings have been declared


(Krishnaraj) #81

I did not see any folly. In any case investing is a funny craft where many “experts” make money by telling you how to make money. Now if you think about it, that’s a paradox in itself.

Veterans may say buy this or that but for every buyer there is also a seller who is also a veteran!

I think normalisation of earnings, or trying to find out core earnings is a subjective process.


(Gaurav Agarwal) #82

@diffsoft Can we re-calculate the EPS of Nifty 50 on consolidated basis taking into account the changes in Nifty 50 which happened on 2-Apr-18?

Thanks


(Krishnaraj) #83

Nifty EPS for FY 18 will be known after earnings are declared. I will share PE with revised Nifty thereafter.


(Krishnaraj) #84

Folks,

Attached is the Nifty trailing 12 month PE (weighted) as at May 31, 2018. Nifty PE Q4 FY18 for valupickr.xlsx (97.0 KB)

Notes:

  1. The Nifty trailing 12 month PE as of 31/05/2018 was 23.35 vs 22.45 as on 20/02/2018. Thus valuations have grown more than earnings, unlike last quarter. About the same time last year the PE ratio was 22.18 which means valuations grew ~ 5% faster than earnings compared to last year.

  2. Nifty EPS (arrived at by dividing Nifty by Nifty trailing PE above) works out to 459.73 vs 461.47 end of Dec. In other words Nifty EPS has fallen.

  3. Weighted quarterly PAT in March fell by about 9% vs Dec quarter leading to fall in Nifty EPS. This is likely due to changes in Nifty effective April 02, 2018.

  4. Nifty EPS grew by about 6.2% last year, adding to another year of poor growth (Nifty PE after all earnings have been declared). It is so modest in comparison with what brokerages forecast that the latter should hide their modesty.

Feel free to ask any queries.

Warm regards,


(Gaurav Agarwal) #85

Nifty 50 EPS growth at 6.2% is lower than GDP growth at 6.7%, this shows that sectors of economy not represented in Nifty 50 did well.

More surprising is q4fy18 where Nifty 50 companies degrew their EPS, whereas GDP grew by 7.7%.

Thanks @diffsoft for your work.


(Krishnaraj) #86

Thanks Gaurav,

Here are some observations on Nifty vs GDP.

  1. Q4 Nifty PAT unweighted was about ₹90,000 cr. Q4 GDP (at current prices) was ~ ₹ 45 lakh crores ( [Q4 GDP] )(http://mospi.nic.in/sites/default/files/press_release/nad_PR_31may18.pdf). Thus Nifty forms 2% of GDP, which is way smaller than what is generally thought. Also, we need to take GDP at current prices (nominal GDP, not real GDP), not constant prices. Further, generally people take income of a firm to compare with GDP whereas it should be earnings.

  2. Nifty is constrained by many factors unrelated to the broader economy in general. For instance free float and liquidity are important factors to be included in the Nifty. Besides it has to represent the market, which will not have full representation of the economy.

  3. Nifty also will have to pick businesses in a sector that have better prospects, even if not representative. This is best illustrated in the composition of banks. There are 6 private sector banks vs only one public sector bank in the Nifty, whereas public sector banks account for more than 60% of assets.

  4. When I last looked Nifty has a substantially larger portion of its business conducted outside India, and exported from India vs the Indian economy 50%+ vs 36%, iirc). For instance, all IT, Pharma firms have mostly exports, as does refining business of Reliance. Tata Steel, Tata Motors, Hindalco have overseas businesses larger or comparable to their Indian businesses.

  5. Another important factor is that the change in computation of GDP (which is a statistic, whereas Nifty earnings are not) that inflates the GDP, and for which back series has not been provided to make a comparison. A reading of the changes with some economists’ commentary led me to believe that that the new series does inflate GDP. This has resulted in divergence between the statistic and pockets of reality we are each exposed to. There was an opinion to that effect as recent as a few days ago (India needs to diagnose its GDP system).


(Gaurav Agarwal) #87

Do you have weighted earnings growth for the year and quarter, if you have that numbers easy?

On on broad level Nifty 50 should represent that best that India has to offer therefore the earnings growth of Nifty 50 shall be more than GDP growth but if the case is otherwise it is something to think about!


(Krishnaraj) #88

You can compute it from the excel sheet by multiplying each unweighted PAT in column D with weights in column H.

This comes to be 29,19,553 for Q4 FY 18

Weighted PAT for the year would have to be the sum of weighted PAT for each quarter (as NIfty keeps changing)

Weighted PAT for Q1, Q2, Q3, Q4 respectively are 26,25,363 , 26.79,188 , 31,99,813 and 29,19,553


(Gaurav Agarwal) #89

This article gives a very rough idea why GDP grew at 7.7% and Nifty 50 grew only 6.2% yoy.