Nifty bulls caught between greed and fear. Let's see where we are in the market cycle
Investors who have been around are wondering if this is 1999 all over again with an imminent NASDAQ crash. Many others are pondering whether to sell, lock in profits, or buy more. The best approach, we believe, is to examine the data and make an objective decision.
From January 2020 (pre-COVID), the Nifty 50 is up 101%, with earnings up 100.8% as well. Earnings have accounted for 100% of the price appreciation of the Nifty 50. The Nifty 50 PE ratio has remained unchanged since 2020, while the trailing 12-month EPS is up 18.6% YoY.
We observe the same phenomenon with broader indices: the Nifty 100 is up 108% since January 2020, and the Nifty 100 EPS is up 111.6%, with trailing 12-month EPS growth at a healthy 24%.
The BSE Midcap 150 index is up 239% since January 2020, driven by EPS growth of 129% and PE multiple expansion of 48% (73% of the appreciation is explained by EPS growth and 27% by PE expansion). The BSE Smallcap 250 Index is up 254%, with EPS growth of 259% and a PE multiple contraction of 1.9%. There is a notion that valuations on the Nifty50 are expensive; however, the Nifty50’s current PE of 24 times is consistent with the range observed for most of the Modi regime over the past 10 years. The current yield gap between bonds and equities is only slightly above relative parity. Earnings growth has been robust and is expected to continue, with India Inc.'s earnings growing consistently at a mid-teens rate across large, mid, and small caps.
A key takeaway is that the market run-up appears to be fully
