Just 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!
Source: http://capitalmind.in/