December 9, 2015

The Nifty Has Fallen, But the P/E Ratio is at a Relatively High 20 While Earnings Contract

Nifty PEJust as the market breaks into a low, we revisit the price-to-earnings chart of the Nifty. Earnings are falling – by more than 5% over last year at this moment – and the P/E of the Nifty continues to be as high as 20, even after this fall.
How can P/E and earnings growth diverge for too long? we’ve been on a diverging road since 2009. If corporate earnings have fallen off a cliff (and they have) then we should be falling – and we have only fallen to these levels. Fundamentally, if we were to see a P/E of just 18, that is another 10% fall from here at least. Just putting some perspective.
The stuff yet to come: The rate hike in the US, the lousy corporate earnings in the Dec quarter, the fight over GST, and the NPAs and Defaults. The next few months will be fun!

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