My latest at Yahoo on the absence of Nifty EPS Growth:
I've been complaining about the lack of Nifty Earnings Per Share (EPS) Growth for at least two years now. Amazingly, three Septembers ago, in 2007, the Nifty 50 companies provided an EPS of about Rs. 220, and the number today is about 238. What this tells us is that the strongest Indian companies have grown their earnings (per share) at just 8% in three years, which is less than 3% a year. This sounds peculiar for a country that has shown 6% GDP growth or higher for the last three years - shouldn't our top companies be growing faster?
Earnings Per Share for an index like Nifty is difficult to understand. I can understand EPS for a company, you say. If a company has 100 shares, it makes 1,000 rupees in net profit; I can calculate the EPS as Rs 10 per share. And the Price to Earnings ratio, or the P/E, is simply the market price of the company share divided by its EPS. If Reliance earns 4000 crores and has 80 crore shares, its EPS is 50. At a price of 1,000, its P/E is 1,000/50 , or 20.
Simple enough. But when it comes to an index, which has a number of companies in it, what is the P/E or EPS?
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Comments, like always, are deeply appreciated!
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- Too Few Investors (Comments)
- Survivorship Bias (Comments)
- The Problem with Multi-Level Marketing (Comments)
- Planning for the Grim Reaper (Comments)
- Of Options and Choices (Comments)
- Credit Default Swaps (Comments)
- Four Investing Myths Busted (Comments)
- (The Whole Lot)
This post is written by Deepak Shenoy,
at Capital Mind.
