Jagan: With Nifty 50 down 13 per cent year-to-date, the markets seem to have factored the worst. Can we start buying now, Mr. Trader?
Shiv: There can be no such blanket calls. But, for me, the bigger risk is the risk of earnings downgrade.
Jagan: The market has factored for weak earnings already; what earnings downgrades are you concerned about?
Shiv: Like you mentioned, ‘factoring for weak earnings’ implies the valuation multiples have been revised downwards. Currently, the Nifty 50 one year forward PE has come down from 21 times in January 2026 to 17 times now; that is a 17 per cent decline.
Earnings downgrade implies moving the future expected EPS downwards. This will be the second leg of the revision on top of the multiple revisions and will follow the company commentary in the upcoming results season.
In January, we were working with ₹1,250 of Nifty earnings in next one year and valued it at 21 times. Now, the same earnings are being valued at 17 times. I repeat, the same earnings. What if the earnings estimate for next one year is trimmed to ₹1,150, driven by a gloomy outlook gathered from investor calls; that is the main risk I am worried about.
Jagan: Short-term pain in earnings is expected by investors. Are you pointing to long-term impact?
Shiv: In the midst of such upheaval, investors can digest a quarter or two of weak performance. By earnings downgrade, I refer to structural signs of low or weak earnings growth for a prolonged period. This could be led by supply costs. Remember, after Covid, commodities shot up in an unprecedented manner and that led to persistent inflation. With oil and gas infrastructure that powers the world falling like dominoes every day, it’s hard to tell how long, deep and persistent the aftershocks on oil and gas will be. This can impact fuel, logistics, and operational costs of any company. In an extreme scenario even consumption patterns, and then, demand can weaken, which will bring revenue weakness. Early pointers on each company’s financials will be probed by investors in conference calls to gauge a longer-term impact on earnings.
Jagan: What if companies paint a confident picture?
Shiv: Yes, that is a possibility as well if supply-related cost inflation is judged to be manageable. And instead of demand destruction, we face demand growth from exports to MENA, Africa and other countries. In such a scenario both multiples and earnings upgrades will follow allowing for recovery and some more.
Jagan: That is possible, but with a small correction. Humans are loss-averse; we factor for loss much faster than we factor for gains.
Published on April 4, 2026