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Earnings Yet to Catch Up with Valuations
Jun 7, 2017

The markets are touching record highs every day. It makes sense to sit back and evaluate if the fundamentals are in place for such heady growth. When one looks at corporate earnings over the past 5 years, it paints a different picture.

While valuation has reached dizzy heights, earnings are yet to catch up. Investors are hoping that earnings will eventually catch up with valuations. Even the slowdown on the economy due to the notebandi impact has been ignored.

The GDP numbers reflected the recent slowdown in the economy. GDP grew at 6.1% for the fourth quarter of 2017, a fourth consecutive decline for the quarter.

The corporate results for the fourth quarter of financial year 2016-17 also highlighted the slowdown in the economy. The combined results of 2200 odd companies largely showed decent numbers, but still a sharp decline from the third quarter of 2016-17.

With money from retail investors coming into the market at a steady pace, the general assumption amongst investors is that growth will eventually come and justify the premium valuations they've given to the markets. Perhaps investors are getting ahead of themselves.

Data Source: BSE India

This Chart Of The Day was published in The 5 Minute WrapUp - How Much Money Do Smart Investors Make in the Market?

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