Earnings forecast pushes market rally

The NSE Nifty 50 index is up 28.4 per cent in dollar terms this year, the second highest among the world's top 13 markets. South Korea’s KOSPI tops the list with 30 per cent yearto-date (YTD) returns in dollar terms. Borsa Istanbul trails India with 23.9 per cent YTD returns in dollar terms.

Other experts are advising investors to discount the forward earnings estimates, given their poor history. "Actual earnings have repeatedly been significantly lower than forward estimates since the 2008 global financial crisis. Every financial year, analysts begin with expectations of doubledigit growth in earnings but eventually settle for low singledigit growth. The pattern may repeat itself," said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.

In the eight years since 2009, Nifty companies’ earnings are up 24 per cent in dollar terms, growing at a compound annual rate of 2.7 per cent. Sensex companies have done worse with a 2 per cent CAGR over the period.

India is among the bottomranked markets in actual earnings growth over the last three years. Nifty companies’ underlying earnings growth of 10 per cent in the last year ranked ninth among the world's top 13 markets. Sensex companies fared even worse with 5.5 per cent earnings growth in the last 12 months. Only companies in South Africa, the US and Russia reported lower earnings growth in constant currency during the period.

In the last three years, earnings growth in India was ranked eighth, with companies in Russia, France, Japan, Indonesia, Germany, Brazil and the US ahead of Indian firms.