The past year has been great for investors. In rupee terms, the National Stock Exchange’s Nifty has returned 24 per cent since January. It has returned more in dollar terms. Mid-caps and small-caps have beaten big stocks. At the same time, valuations have outpaced fundamentals by huge margins.
The Nifty is trading at a price-to-earnings (PE) of 26. Earnings have grown by five per cent absolute in the past eight quarters. The Nifty Midcap index is trading at 32 PE and earnings have grown 14 per cent over eight quarters. The optimists expect earnings to catch up and there seem to
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