In this backdrop we look at historical and relative performances of sectors and focus is on earnings growth, valuation i.e PE Ratio, return and risk. The following chart looks at Earnings per Share (EPS) year on year growth’s high, low, current and deviation (difference between high and low) since April 2007. As seen in the chart the Realty sector’s EPS is the most volatile while Consumption sector’s is the lowest,only next to Nifty, and IT deviation has more positive bias. Another point to note is that EPS growths of Nifty, Consumption, CNX 500, Midcap 50 and IT are above their historical averages while those of other sectors are below their respective averages. Surprisingly EPS growth of Auto is below its historical average yet it is the best performer among the lot.
The following chart shows that current Return on Equity (ROE)are below respective historical averages and we see as expected Realty’s ROE hitting the bottom followed by Metals. Consumption’s ROE is less volatile and its earnings too is less volatile which reflects in its rich valuation, the sector’s PE ratio is currently isat a premium over that of Nifty’s.
ME Analysts explores Sectors: Rotation, risk and return in two-part series.
