Markets are slaves of earnings (EPS) & expectations (PE). If the earnings growth doesn’t meet up to market expectations after prolonged period of grace time, it will be subjected to severe punishment.
The above claim was vindicated in the 3QFY16. The quarter gone by had handful of examples where market punished stocks with high expectations (PE) but failed to deliver performance (EPS). Just Dial, Page industries, Jubilant food works to name a few.
|Jubilant Food Works||14%||5%||51.2|
Stocks which have missed the earnings sharply, raises the most important question i.e. when is the downward revisions in earnings is expected to be bottomed out?
In 3QFY16, many corporate earnings had sharply missed the already downward revised earnings estimates and hence forming a lower base in FY16. This base effect combined with expected revival of growth in 2nd half of FY17 will help bottoming out downward earnings revisions.
Having said the above, this quarter had seen some green shoots in earnings and seen upward revisions in earnings in some of the high quality stocks.