Series 102 – Signals in the Noise

The Indian stock market is constantly buzzing with news, predictions, and speculation. Every day, investors are bombarded with data—US tariffs, Foreign Institutional Investor (FII) activity, interest rate decisions, GDP and inflation trends, and discussions about whether Price-to-Earnings (PE) ratios are high or fairly valued. While these are important factors that needs some sound, they often create more clamor than clarity.​

In the midst of all this, the real question for an investor is: What is the signal?

Nifty vs. Nifty EPS

If we cut through the short-term noise and look at the bigger picture, one trend stands strong—Nifty’s Earnings Per Share (EPS) has consistently grown over the last 25 years.​

Market Falls, But EPS Keeps Growing

Let’s take a look at past events:

• 2008 Global Financial Crisis: The Nifty 50 index plummeted by approximately 52% due to the global financial crisis. However, as corporate earnings recovered, the market saw a strong bull run in the following years.​
• 2013 Taper Tantrum: The announcement of potential tapering of quantitative easing by the U.S. Federal Reserve led to significant capital outflows from emerging markets, including India. This resulted in currency depreciation and market declines. Despite these challenges, earnings growth remained solid, and the Nifty rebounded strongly.​
• 2020 COVID-19 Crash: The onset of the COVID-19 pandemic in early 2020 led to a sharp decline in the Nifty 50 index. However, once EPS growth resumed, the Nifty not only recovered but hit new highs in the subsequent years.​
• Current Market Fall (2024-25): Global uncertainties, high interest rates, and geopolitical tensions have led to market volatility. Despite these challenges, projections indicate that the Nifty 50’s EPS is expected to grow. This suggests that, if earnings growth remains intact, a strong recovery could follow.

Over the past few years, India’s weight in the MSCI Emerging Markets Index has significantly increased. This reflects strong confidence in India’s economic prospects and corporate earnings growth. The Nifty 50 index has also shown resilience, rising steadily over time.

Signal:

Currently, the market is facing multiple concerns but if we filter the noise, we see Nifty EPS continues to grow steadily. The current Nifty EPS is on a growth trajectory, and many Nifty stocks are trading at a discount. This presents a favourable opportunity for the new investment.

We at ITUS fundamentally look into these kinds of opportunities market offers, and recommend our investors to add capital to the portfolios.

 

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