Valuations rise as Nifty hits new high, but earnings higher too

 Ram Sahgal

ram.sahga@livemint.com

MUMBAI  

The stock market’s T engines may have more steam left despite Nifty’s new peak fuelling valuationjitters, analysts said. This is because even as valuations exceed the historic average, earnings of Nifty companies have raced ahead as well. On Monday, bulls kept up the momentum amid thin volumestodrive the Niftytoa new high, led by ICICI Bank, Reliance Industries, Bharti Airtel, ITC, and Bajaj Finance. The index touched arecord 22,186.65 points during the day, before closing 0.37% upat 22,122.25. Despite the benchmark making new life highsin a matter of weeks, analysts believe that valuations aren’t stretched and markets could continue tomove upatagradual pace from current levels. The index’s previous lifehigh was 22,126.8 on 2 Febru ary, slightly above the previous high of22,124.150n16 January. On a one-year forward basis, the Nifty trades at a price to earnings multiple of 18.1 times against the historic average of 16.96, shows Bloomberg data. While prices have risen, earnings have grown, too, which has prevented the formationofabubble. Whilerevenue of 1,779 listed companies grew by 10.95% year-on-yearin the December quarter, net profit surged 25.08% during the period, Mint data showed. Excluding companies in banking, financial servicesand insurance space, revenue was up a tepid 5.29%, but profits soared 38.59%. “Despite the market hitting new life highs at regular intervals, valuations look ok because of robust earnings growth,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies. “We are factoring 15% earnings growth for FY 25, which could be raised in H2 (second half), because of the multiplier effects of government spending 1L11 trillion).” Nityanand Prabhu, ED and business head, LIC Mutual Fund agreed. “Earnings have been robust; even as Nifty has risen so have earnings, which have not stretched valuations tobubble territory.” TURN TO                                                                                                                                                       PAGE 4

Valuations rise as Nifty hits new high, but earnings higher too  

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Though Prabhu hasa “bullish”outlook forthelong term, a pullback or correction of 5-10%, he said, would be “normal” and “healthy” and could be an “attractive entry point”. The 31%rise in the Nifty from it slow of16,828.35 on 20 March 2023 through Monday’s closing of 22,122.25 was led by cumulative foreign and domestic institutional buying. While domesticins titutional investors have pumped inanetX1.45 trillion sofar this fiscal, FPI shave net-invested X1.67 trillion. Monday’s rallylifted India’s market capitalization to $4.78 trillion. Retailinvestorson BSEwho directly buy and sell on theexchanges have booked profit during the fiscal by net selling X773.77billion. Thefigure on NSE stand sata negative 353.88 billion in the fiscal through December. While provisional cash figures for FPIs and DIIswere unavailable until press time, FPIs covered part of their bearish cumulative index future souts tanding positions on Nifty. Theircumulative net short positions stood at 63,809 contractson Monday, down from 68,790 contractson Friday. NSE’s turnoverstood at 3950.51 billion on Monday against the monthly average so farof 1.24 trillion. Nirav Karkera, research head of online investment company Fisdom, cautioned that the relatively tepid top line growth in Q3showed that there was stress indemand and that ifrawmaterial prices or wages increased, going forward, that could pressure the bottom line, which has sofarbeenrobust.