The market frees itself from the shackles of corporate earnings
The accompanying chart plots the Nifty 50 index on the right versus the Bloomberg estimates of the one-year forward earnings per share (EPS) of the companies that make up the Nifty index, on the left. The chart is from 1 April 2017.
An increase in the Nifty index should normally be accompanied by a rise in the Nifty EPS estimates as well. But we are evidently in a New Normal. The chart shows that while the Nifty has been rising, the average Bloomberg estimates for the Nifty EPS have been declining.
In short, the chart underlines the fact that the recent rise in the equity market is solely the result of the massive amount of funds flowing into it. India’s equity market seems to have unshackled itself completely from corporate earnings. It will be interesting to watch how long it can maintain this remarkable feat