Market direction hinges on corporate earnings growth, bond yields

The benchmark Nifty is up 12 per cent this year. Where the index goes from here hinges on how corporate earnings growth and valuation multiples pan out.
 
Broking firm UBS says if earnings of Nifty50 companies grow at 25 per cent this year and 17 per cent each in the next two financial years, the benchmark index may move towards 17,000.
 
However, if earnings growth disappoints and the markets get de-rated, the index can even drop to 13,000. The Nifty on Friday ended at 15,683. The consensus Street estimate is in excess of 30 per cent earnings growth in both FY22 and FY23.
 
Lockdowns to curtail the lethal second wave of Covid-19 infections have resulted in some earnings downgrade. Despite that, the markets have edged higher, pushing valuations into expensive territory.

 
Currently, the Nifty trades at 23x its estimated earnings for FY22. Analysts say high P/E multiples are supported by ultra-loose monetary policies and the low yield on the 10-year government security.
 
As a result, the normalisation of the monetary policy or a spike in domestic bond yields may act as a headwind for the market.