Sensex Nifty EPS not increasing

I had provided an early indication of what Sensex and Nifty EPS would look like after this quarter results in the article on May 1. The situation has not improved at all since then. Low P/E Grasim was replaced by high P/E JSPL in Sensex on 26 May and so the latest Sensex EPS has come in at 16387.84/19.78=828.5. The Nifty EPS is holding at 4917.4/20.52=239.64. So since our last update, the Sensex EPS has gone down by 2.375% and Nifty EPS has gone up by 1.2%. Not very pretty. Have some negatives like higher tax rate and dilution and the Sensex 16.5K and Nifty 5K does not hold a good picture. Be cautious!!!!

Macro Call

There are very few times when a value investor is able to make a macro call. But I am daring to do it at this stage. The call is on financial sector in India. If you look at Index composition of Nifty and Sensex, there is hardly any diversification left. Financial sector represents 23.74% of Sensex (ICICI Bank, HDFC, HDFC Bank and SBI) and 25.37% of Nifty (AXIS BANK, HDFC BANK, HDFC, ICICI BANK, IDFC, KOTAK BANK, PNB, RELIANCE CAPITAL, SBI). As all of you must be knowing, a value investor generally does not invest in financial firms since they are difficult to evaluate. This leaves just 76.24% of Sensex for investment for a value investor like me.

It has already been observed many a times in the past that when a particular sector garners most of the weightage of a financial index, it underperfoms the index. The evidence can be seen in IT sector after 2000 and FMCG and Pharma in India after 2003. So I am taking a call on Indian Financial sector today, that the sector would be an underperformer in the next five years.

Abnormally good or abnormally bad conditions do not last forever. - Benjamin Graham

You are a fool!!!!

Mark this day and the time and following statement from Deepak Parekh, the Chairman and Managing Director of HDFC.

I would say that if you do not put it in the stock market you are a fool.

The statement was said in response to the following question asked by Vir Sanghvi on a show named "Tycoons"

Supposing somebody came to you, youngish guy and said I have Rs 10 lakh, I don’t want to look at them for another 10 years, should I put them in the stock market what would you say?

Let's also note down Sensex and Nifty values @16925 and @5075 respectively. Let's see how our corporates are doing in predicting the future course of stock market in India.

Sensex Nifty EPS after one month of results

The result season is almost midway and the people are eager to know what the Sensex and Nifty EPS would be at the end of this quarter. Till now many big companies like Infosys, Wipro, TCS, RIL, HDFC Bank, BHARTI, ICICI Bank, Hero Honda, Maruti, Sterlite has announced results. The companies which have already announced results have a weightage of around 50.25% in Sensex. So we are clearly almost midway.

Many of these companies reported bumper results. Hero Honda, Maruti and Sterlite reported more than 100% increase in net profits. RIL, HDFC Bank, ICICI Bank and TCS announced profits that are 30% or more higher than the same quarter last year. Shouldn't this translate to a surge in Sensex/Nifty EPS? Guess what? Sensex EPS is up from 806.81 on 4 February 2010 to 17558.71/20.69=848.66 today. The big results that are still pending are L&T, HDFC, ITC, ONGC, SBI and BHEL.