Nifty 50: The Secret Behind Excellent Returns of These Nifty 50 Stocks
Nifty 50
Unlocking the Mystery Behind Nifty 50 Stocks’ Excellent Returns: Is It All About Earnings or Something More?
In the world of stock markets, there’s a widely acknowledged adage: “The share price of a company is a slave to its earnings.”
But is this age-old wisdom still the prevailing truth in today’s complex and ever-evolving financial landscape? To unravel this mystery, we’ve undertaken an extensive analysis of the earnings and share price movements of select Nifty 50 companies spanning from January 2020 to August 2023.
Our goal is to shed light on the extent to which earnings are responsible for driving the surge in share prices, and to what degree other factors come into play. Let’s delve into the details of our findings.
Adani Enterprises: A Remarkable Gainer with a Twist
During the period from January 2020 to August 2023, one standout performer in the Nifty 50 was Adani Enterprises.
Despite facing Hindenburg allegations and controversies, the flagship company of the Adani Group remained the largest gainer in the Nifty 50.
However, what makes this case particularly intriguing is that most of the upswing in its share price cannot be attributed solely to earnings growth.
While the company’s earnings more than doubled over the course of three years (FY20-24), its shares skyrocketed by an astonishing 1,100%.
This disparity suggests that factors beyond earnings significantly contributed to Adani Enterprises’ meteoric rise.
Apollo Hospitals: A New Entrant Making Waves
Apollo Hospitals, a relatively recent addition to the Nifty 50 index, has been making waves with both its share price and earnings performance.
Since 2020, the company has delivered an impressive return of 240%. Approximately half of this surge can be attributed to earnings-related performance, while the remaining half is influenced by factors like increased purchasing power and market sentiment.
JSW Steel: Earnings Excellence in the Steel Sector
Experts anticipate substantial improvements in the earnings performance of JSW Steel, positioning it for potential advancements in this list.
Despite concerns surrounding steel prices and a slowdown in China, the company is expected to outperform.
Two-thirds of the total increase in JSW Steel’s shares can be directly attributed to earnings growth, demonstrating the importance of solid fundamentals in driving share price growth.
LTIMindtree Ltd.: Navigating the IT Sector’s Challenges
As a recent entrant to the Nifty 50, LTIMindtree Ltd. provides a unique perspective. Around 45% of its realized returns are driven by earnings growth. While the IT sector has faced a demand slowdown, some companies like Mindtree have managed to outperform. This performance highlights the resilience of certain IT firms in navigating sector-specific challenges.
Mahindra and Mahindra Ltd.: A Case of Accelerated Earnings
Mahindra & Mahindra (M&M) presents an unusual scenario where earnings growth has significantly outpaced share price appreciation. Over the past four financial years, M&M’s earnings per share (EPS) has increased nearly ninefold, while the stock price has only tripled during this period.
This discrepancy has led to a decline in the price-to-earnings (PE) ratio. For some investors, this divergence signals a positive outlook for the stock, as it suggests the potential for share price catch-up.
Tata Steel Ltd.: Riding the Commodities Super Cycle
Tata Steel has benefited from the commodities super cycle in recent years. However, the rally in the company’s shares appears to be plateauing, mirroring a similar trend in earnings growth.
Nonetheless, the company’s stock has risen by 170% since January 2020, with one-third of this gain attributed to earnings growth.
Titan Company Ltd.: Doubling Earnings Per Share
Another Tata Group company, Titan, has successfully doubled its Earnings Per Share (EPS) from 2020 to August 2023.
The stock price pattern of the company closely aligns with its earnings trajectory. An impressive 88% of the total increase in Titan’s shares is directly related to profit growth.
Cipla Ltd.: Balancing Returns with Earnings
Cipla Ltd. has delivered a remarkable 160% return in the relevant period, although only one-third of these returns can be attributed to its earnings performance.
As of January 2020, many experts considered it an attractive investment option, contributing to its strong market performance.
Tata Consumers Products Ltd.: Consistent Growth Story
Tata Consumers Products Ltd. has maintained a consistent growth trajectory in both profits and shares during the relevant period. The company has successfully expanded its product portfolio through organic and inorganic means.
Sun Pharma: A Promising Future
After a period of sluggishness in the last three years, Sun Pharma shares are anticipated to perform better in the financial year 2024. The company’s share price has closely mirrored its earnings performance.
These case studies of select Nifty 50 companies highlight that while earnings play a significant role in share price appreciation, they are not the sole determinant.
Other factors, such as market sentiment, macroeconomic conditions, industry trends, and investor sentiment, also exert substantial influence on stock prices.
Understanding this intricate interplay between earnings and external factors is crucial for investors seeking to navigate the complex world of equities.
It underscores the importance of comprehensive research and due diligence when making investment decisions in an ever-changing financial landscape.
