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Business News/ Market / Mark-to-market/  Why Shanghai’s loss may not be India’s gain
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Why Shanghai’s loss may not be India’s gain

The 2% decline in Mumbai stock market is better than Shanghai's rout, but does nothing for absolute returns

The Nifty’s historical price-to-earnings multiple has increased 11.5% to 23.2 times from 20.8 times a year ago. Photo: Aniruddha Chowdhury/MintPremium
The Nifty’s historical price-to-earnings multiple has increased 11.5% to 23.2 times from 20.8 times a year ago. Photo: Aniruddha Chowdhury/Mint

Why is Shanghai’s loss not India’s gain? The 2% decline in Mumbai stock market is better than Shanghai’s rout, but does nothing for absolute returns. Disappointing results in the face of relatively firm valuations may be one reason for it. The Nifty’s historical price-to-earnings (P-E) multiple has increased 11.5% to 23.2 times from 20.8 times a year ago.

That rise is based on the hope that corporate performance will soon come back on track. But weak sales and earnings growth so far strain that belief. And, this is despite early results comprising well-performing sectors such as software.

On Monday, Mint reported that earnings growth of 275 companies rose by only 9.3% in the June quarter compared with 10.8% in the March quarter. Sales growth has declined by 2.8%.

Many companies in the manufacturing and financial sector are yet to report results. Negative surprises could follow and that may raise more questions on whether valuations are justified. Fundamentals begin to count when momentum takes a backseat. But of course, all may be forgotten if a liquidity-induced euphoria lifts stocks once again.

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Published: 27 Jul 2015, 07:48 PM IST
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