Fairval

Notes on Indian equities, sectors and economy

Impossibility of predicting earnings

Posted by fairval on January 2, 2014

The interesting thing to note in this chart below is how earnings estimate change over time. For FY14, for example, the EPS estimate (for msci india index) started at 435 and seems set to end at 395, down by almost 10%. FY13 was even worse, with estimates coming down by 16% over time.

Image

Actual earnings growth was 6-8% FY13 and likely to be less than 10% in FY14 again. While FY15 estimates seem to suggest 17% growth over FY14, these numbers should come down over time. As this blog has written earlier, earnings estimates a year ahead mean nothing, and tend to be in the 18-20% bracket by default. They may eventually turn out vastly different, going up in bull markets and coming down in bear markets. Seems to suggest estimating earnings is an almost impossible task.

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