The era of indiscriminate rallies is over

Now that we have at least turned back the cycle in favour of fundamental characteristics such as Earnings and Quality of businesses explaining most of the performance vs rapid valuation expansion explaining most of the price performance specially between 2023-24. I thought it's the right time to get this message out to all of you.

- By: Abhishek Tiwari, CEO, PGIM India AMC

To drive this home let's look at data from FY21 to FY24, India's listed corporate earnings experienced a powerful rebound. Nifty indices registered rapid EPS expansion off a COVIDera low base and amid robust government capital expenditure (capex). By FY25, the earnings cycle clearly moderated, with singledigit growth at the index level and a tempering of public capex. So now fast forward to today now that investors have no reason to pay extra attention to aggregates the focus has shifted back pretty decisively in favour of structural businesses with repeatable growth characteristics. These facts recentre attention on business quality and earnings durability over cyclical tailwinds.

NIFTY 500: A Historic Earnings Surge Driven by Recovery and Capex

Over the past 17 years, NIFTY 500 earnings have rarely seen the kind of growth witnessed between FY21 and FY24. Historically, annual EPS growth averaged ~4% from 2009 to 2019, with several years of negative or low single-digit growth. In contrast, the post-COVID period delivered extraordinary numbers: