InvestorQ : How are the index earnings and valuations looking at this point after the sharp rally in the Nifty and Sensex?
diksha shah made post

How are the index earnings and valuations looking at this point after the sharp rally in the Nifty and Sensex?

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Mahima Roy answered.
4 months ago
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In a recent report, ICICI Direct the broking arm of the ICICI Group, has outlined some of the projections for the earnings growth on the Nifty companies for the next 3 years. According to the report put out by ICICI Direct, Nifty company earnings are expected to grow at a compounded annual growth rate or CAGR of 24.2% over the 3-year period; FY21-23.

Based on its earnings estimates, the report by ICICI Direct assigns an indicative valuation target of 16,300 for the Nifty at P/E of 22X on forward FY23 earnings. That would imply that the markets are reasonably valued at this juncture. The corresponding target for Sensex is at 54,300, which is a little above the peak that the indices touched recently.

Corporate earnings in the Indian context have gained momentum during the third quarter of FY21 on account of a sharp and distinct rebound in economic activity. During the quarter ended December 2020 which is the third quarter for most Indian companies, most Indian companies have benefited from lower raw material costs and leaner cost structures.

The two sectors that saw negative growth in top line were the BFSI financials and the oil and gas sectors. If these two sectors were to be excluded, then the sales growth would have been closer to 10% on a yoy basis. Apart from that, the capital goods space picked up sequentially while the FMCG space has seen strong growth momentum. The FMCG growth, needless to say, has been largely led by rural growth staying robust.

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