Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

Nifty EPS Growth Drops Off A Cliff

21 Jun 2013Deepak Shenoy1 min read

Quick Facts

What is "Nifty EPS Growth Drops Off A Cliff" about?
What category is this article in?: Charts And Analysis
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 21 June 2013.
How long does this article take to read?: 1 min read

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.