Nifty Valuation Tracker Series: May 2026 Update – Broad Market and Smart Beta Indices 31May2026

Nifty Valuation Tracker Series: May 2026 Update – Broad Market and Smart Beta Indices 31May2026

 

Follow @vrk100

 

(This is my 515th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.

The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. 

Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

 

Introduction

This note is the second part of the updated valuation framework for select NSE indices, building on earlier studies published:

1) On 21Apr2026 namely “How Valuations Shape Returns and Risk in Select NSE Indices” and 

2) On 03May2026 namely “Valuation Changes in Broad Market and Smart Beta Nifty Indices”. 

While those studies focused on valuation, returns, risk and short-term re-rating, this section focuses on current valuation positioning within a historical range.

The analysis compares current levels (as of 31May2026) against a 21-quarter baseline from Mar2021 to Mar2026 across six Nifty indices. It uses percentile-based positioning of PE, PB and dividend yield to assess whether valuations are relatively rich or attractive across segments.

Note: The idea is to update this 21-quarter framework each quarter as new data become available. For example, inclusion of the Apr–Jun2026 quarter will extend the dataset to 22 quarters in the next update, maintaining a rolling historical reference.

Section 1:  

Valuation Re-rating across Largecap, Midcap, Smallcap, Low Volatility, Momentum and Quality Indices (31Mar2026 – 31May2026):

This note updates the earlier valuation framework by examining how select NSE / Nifty indices have moved from end-Mar2026 to end-May2026, focusing on Midcap 150, Smallcap 250 and Nifty 200 Quality 30. 

The objective is to decompose recent price gains into PE re-rating and PB movement, and assess whether valuation changes are being driven by earnings support or multiple expansion.
 
While there are six Nifty indices included in the two charts below, let us focus on three indices, namely, Nifty Midcap 150, Nifty Smallcap 250 and Nifty 200 Quality 30, for our short analysis.

Across Nifty Midcap 150, Nifty Smallcap 250 and Nifty 200 Quality 30, price gains over the period have been accompanied by varying degrees of PE expansion / contraction and PB expansion.
 
Data are fascinating. Sometimes.

In the past two months (31Mar2026 – 31May2026), Nifty Midcap 150 PE ratio has fallen, while the price index itself has risen.

In contrast, Nifty Smallcap 250 index's PE expansion is much faster than the rise in underlying index. 
 

A. Midcap index: 
 
The Nifty Midcap 150 index gained 16.2 per cent over the period under review (end-Mar2026 to end-May2026). Despite the rise in prices, its PE ratio declined by 5.5 per cent. This suggests that earnings grew faster than stock prices. 

The implied earnings contribution is approximately 21.7 per cent, offset by valuation compression. The rally appears to have been driven primarily by fundamentals rather than multiple expansion. 

Midcap returns appear earnings-driven, but the precise contribution cannot be directly verified without the exact EPS aggregation methodology and update timing used by NSE India.  
 
One big assumption here is: NSE India and Nifty Indices are in the habit of updating all the earnings without any time lag. 
 
B. Smallcap index: 

The Nifty Smallcap 250 index advanced 18.9 per cent during the same period. Its PE ratio, however, expanded by a much larger 30.2 per cent. This indicates that valuation rerating contributed more to returns than earnings growth. 

The implied earnings contribution is nearly minus 11.3 per cent, meaning earnings lagged the increase in prices. Future performance may depend on earnings catching up with elevated valuations.
 
Why the big contrast? Midcap and Smallcap indices delivered similar returns.

Yet the source of those returns is completely different.

Midcaps:

Return driven by earnings.
Valuation becoming more reasonable.
Risk profile improving.

Smallcaps:

Return driven by multiple expansion.
Valuation becoming richer.
Risk profile increasing.

That distinction matters because earnings-driven rallies tend to be more durable than valuation-driven rallies. 
 
C. Quality index:  
  
The Nifty 200 Quality 30 index delivered a return of 10.5 per cent. Its PE ratio increased by 5.5 per cent, indicating moderate valuation expansion. The implied earnings contribution is therefore  nearly 5 per cent. 

Both earnings growth and valuation rerating appear to have contributed to performance. Compared with small caps, the return profile for Quality index looks more balanced and fundamentally supported.
 
Overall interpretation:
 
Broad Market Indices:

The broad market presents a mixed picture beneath the surface. Midcaps are being supported primarily by earnings growth, while smallcaps are benefiting mainly from valuation expansion / re-rating. 

Similar price returns are therefore being driven by very different underlying factors. Overall, fundamentals appear stronger in midcaps, whereas smallcaps are becoming increasingly dependent on sentiment and liquidity. 


Smart Beta Indices:

The smart beta segment appears to have better earnings support than the broader smallcap space. The Quality index has delivered returns through a combination of earnings growth and moderate PE expansion, while Momentum has relied more heavily on rerating. 

This suggests that quality stocks still retain relatively balanced valuation support. Overall, Quality appears better positioned than Momentum if market conditions remain stable.
 
Note on implied earnings contribution: 
 
In the investment industry, it is a standard practice to use phrases, like, earnings growth, earnings contribution, or fundamental contribution.

To be on the safer side, the author has used the term 'implied earnings contribution,' since it is inferred from index return and valuation changes rather than measured directly from reported earnings. 

In practice, these terms generally convey the same underlying idea: the portion of return attributable to growth in earnings rather than changes in valuation multiples.

To put simply, at the market index level:

Price Return ≈ Earnings Growth + Multiple Expansion

At the stock level:

Price Return ≈ EPS Growth + Multiple Expansion
 
One could also say: 
 
Earnings Component ≈ Price Return − Multiple Expansion.
 
 
Two charts below: 
 
1)  Chart showing valuation change in Broad Market and "Smart Beta" Nifty Indices  (31Mar2026 – 31May2026) >
 
 2) Chart showing PE and PB Expansion versus Index Returns (31Mar2026 – 31May2026) > 

 

Section 2:  

Current Valuation Positioning vs 21-Quarter Historical Range:
 

Section 1 showed how valuations evolved over the period from 31Mar2026 to 31May2026, decomposing index-level returns into earnings contribution and valuation re-rating across broad market and smart beta segments. 

That analysis helped explain the drivers behind the recent move in different parts of the market.

Building on that, Section 2 shifts the focus from movement to positioning. 

Instead of looking at how valuations changed over time, it examines where current valuations (as of 31May2026) stand within their own 21-quarter historical range, using percentile-based comparisons across the same six Nifty indices.

 

Across the six Nifty indices, the current valuation versus the 21-quarter historical range shows a clear divergence between large caps, cyclicals and factor strategies (see two charts below for data).

Broad Indices:

Large-caps (Nifty 50) stand out as the most comfortable segment, with both PE and PB below their lower quartile and dividend yield above the upper quartile. Large caps appear to be cheaper compared to their recent history versus other segments.

Mid-cap stocks (Nifty Midcap 150) appear more neutral on earnings valuation, but expensive on book value and weak on yield. This suggests that while earnings-based valuation is not stretched, market seems to be pricing in strong growth expectations.

Small-cap stocks (Nifty Smallcap 250) are the most stretched among broad indices, with PE above the 75th percentile and yield near historical lows. This indicates that recent performance has pushed valuations into richer territory relative to their own history.

 

Smart beta Indices:

Among the so-called smart beta indices, the picture is more mixed. Low Volatility sits close to its historical median, reflecting relatively balanced valuation conditions, while Momentum is also near median but with subdued yield, indicating continued preference for growth-oriented exposure without extreme valuation stress.

As is well known, Quality index stands at premium valuation, with PE around median levels but PB above the 75th percentile, highlighting persistent willingness to pay for balance sheet strength and earnings stability.

Overall, the six-index framework shows a clear valuation divergence: large caps appear most attractive on a historical basis, mid-caps and quality sit in a fair-to-rich zone depending on the metric, while small-caps and parts of the growth/cyclical space reflect elevated valuation pressure after recent re-rating. 

 

Two charts showing:

Nifty 50, Nifty Midcap 150 and Nifty Smallcap 250 Indices Current Valuation vs Historical Range, and

Nifty 100 Low Volatility 30, Nifty 200 Momentum 30 and Nifty 200 Quality 30 Indices Current Valuation vs Historical Range >

(please click on the charts to view better) 

Shortcomings of the analysis

First, the framework is based on a relatively short history of 21 quarters, which is not enough to fully capture multiple full market cycles such as deep bear markets or extended bull phases. 

Second, the analysis is purely valuation-based and does not explicitly incorporate macro variables such as interest rates, inflation, liquidity conditions, growth prospects or risk premia. These factors can significantly influence both valuation levels and their interpretation across cycles.

Third, the study relies on index-level aggregates, which can hide significant internal dispersion. Within each index, sector and stock-level behaviour can vary widely.

Fourth, the framework is descriptive rather than predictive. It shows where valuations stand relative to history, but it does not establish causal relationships or provide forward return forecasts with certainty.

 

Conclusion

Taken together, the 21-quarter percentile framework provides a structured way to understand where current Nifty index valuations stand relative to recent history. 

The current snapshot highlights a clear divergence across segments, with large-caps appearing relatively attractive, mid-caps and quality positioned closer to fair value, and small-caps reflecting elevated valuation pressure after recent re-rating.

Valuations alone do not determine near-term outcomes, especially in environments where earnings cycles, liquidity and sentiment shifts play a dominant role.

Overall, the framework is best used as a positioning guide within a broader investment process, helping to assess relative valuation comfort across market segments rather than as a standalone buy or sell signal.

The analysis and views expressed are purely for educational and informational purposes and do not constitute investment advice or recommendations. 

Investors are advised to consult a qualified financial advisor before making any investment decisions. The author is not responsible for any losses arising from use of this information.

Check below for references. 

 

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References:

Nifty Return Profile

Nifty Indices factsheets

NSE Index Dashboard monthly - PDF for May2026

NSE Live Analysis - showing index values and valuation ratios of all Nifty Indices on a daily basis  

NSE Market Watch - all indices 

 

 

 

Why Nifty 100 Is Mostly a Nifty 50 Portfolio: Lessons from a Simple Thought Experiment 24May2026

Why Nifty 100 Is Mostly a Nifty 50 Portfolio: Lessons from a Simple Thought Experiment 24May2026

 

Follow @vrk100

 

(This is my 514th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.

The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. 

Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

 

Today, I have done a thought experiment. I'm pleasantly surprised by the results. Let me explain. 

At first glance, index investing looks straightforward. A broad index like Nifty 100 is often treated as a simple, diversified basket of the largest companies in the market. But when you break it down at the level of underlying weights, the picture becomes less intuitive.

In this piece, I explore a simple thought experiment comparing Nifty 100 with a 50:50 combination of Nifty 50 and Nifty Next 50. 

On paper, both approaches invest in the same underlying set of large companies, yet they can generate different returns over long periods. 

The objective here is not to argue for one over the other, but to understand why such differences can arise in the first place and what they reveal about how indices actually allocate capital.

It may also be noted that both Nifty 50 and Nifty Next 50 are constructed from the same underlying universe of Nifty 100 stocks. 

In fact, NSE India / Nifty Indices first defines the Nifty 100 universe and then selects the top 50 stocks by free-float market capitalisation to form Nifty 50, with the remaining constituents forming Nifty Next 50. 

Because of this specific design, the mathematical relationship always holds true:

Nifty 50 + Nifty Next 50 = Nifty 100 

 

1 When Equal Weight Outperforms Nifty 100

As of 30Apr2026, the one-year total return of Nifty 50 index was minus 0.3 per cent, while Nifty Next 50 delivered a strong return of 9.1 per cent. Nifty 100, which combines both these segments through market-cap weighting, ended the same period at minus 1.3 per cent.

If we instead construct a simple 50:50 blend of Nifty 50 and Nifty Next 50, the return for the same period comes to approximately 4.4 per cent. This is a straightforward average of the two index returns, given equal allocation.

What is interesting is that this 50:50 combination significantly outperformed Nifty 100 over the same period. A portfolio built from the same underlying universe of stock, but with a different capital allocation rule, delivered a materially different outcome in just one year.

Note: Nifty 50 contains 50 stocks, Nifty Next 50 has 54 stocks, and Nifty 100 consists of 104 stocks due to ongoing index adjustments related to the Vedanta Ltd demerger process starting in Apr2026.

 

2 What 20 Years of Returns Reveal

To understand whether the one-year observation is an anomaly, it is useful to look at a longer history of calendar year returns across Nifty 50, Nifty Next 50 and Nifty 100 from 2006 to 2025 (see additional data at the end of the blog for the 20 year data table).

The data show a consistent pattern. Nifty Next 50 exhibits significantly higher cyclicality compared to Nifty 50. In strong market phases, it tends to outperform sharply, while in weak market phases it tends to underperform with similar intensity. 

Nifty Next 50 reflects a much wider dispersion of returns across market cycles.

Nifty 50, in contrast, shows relatively stable compounding across periods. Nifty 100 remains closer to Nifty 50 due to its higher aggregate exposure to large-cap stocks, a natural outcome of its free-float market-cap weighting methodology.

This difference in cyclicality is visible even in individual years. For example, in 2024, Nifty Next 50 delivered a return of 28.4 per cent compared to 10.1 per cent for Nifty 50, reflecting strong upside participation in a risk-on market phase. 

In such a year, a 50:50 combination of Nifty 50 and Nifty Next 50 would have delivered 19.2 per cent, compared to about 13 per cent for Nifty 100, highlighting the impact of higher allocation to the more cyclical segment.

In contrast, during 2011, Nifty Next 50 fell by 31.3 per cent while Nifty 50 declined by 23.8 per cent, reflecting sharper downside in a risk-off environment. 

In such a period, the 50:50 combination would have declined by about 27.7 per cent, compared to roughly 24.9 per cent for Nifty 100, showing how higher exposure to the more volatile segment amplifies losses in adverse cycles.

What emerges is that the underlying universe does not behave as a single uniform return stream, but as two distinct return regimes: relatively stable large-cap compounding represented by Nifty 50 and higher-volatility, cyclical growth exposure represented by Nifty Next 50.

Because Nifty 100 assigns weights based on free-float market capitalisation, its composition results in a higher aggregate exposure to Nifty 50 stocks compared to Nifty Next 50. 

As a result, the return behaviour of Nifty 100 tends to be more closely aligned with the performance of Nifty 50 stocks.

Even though Nifty 100 and the 50:50 mix invest in the same stocks, their returns can still differ a lot because:

> sometimes Nifty Next 50 does much better than Nifty 50
> sometimes Nifty Next 50 does much worse

And since Nifty 100 gives Nifty Next 50 a smaller weight (because of market-cap weighting), 50:50 combination (of Nifty 50 and Nifty Next 50) gives Nifty Next 50 a much bigger weight.

To clarify: Nifty 100 assigns weights based on free-float market capitalisation, its composition results in a higher exposure to Nifty 50 stocks (about 81.7 per cent) and a lower exposure to Nifty Next 50 (about 18.3 per cent). 

As a result, Nifty 100 index's return behaviour tends to be more closely aligned with large-cap performance (data as of 30Apr2026).

The stocks are not the real reason for performance difference.

The real reason is:

How much money you put into each part of the market.

 

3 What the Long-Term Pattern Actually Implies

There is no persistent leadership between Nifty 50 and Nifty Next 50. Instead, performance leadership rotates across market regimes depending on whether large-cap stability or broader risk participation dominates.

This directly affects the earlier comparison. A fixed 50:50 allocation between Nifty 50 and Nifty Next 50 does not replicate Nifty 100, even though both draw from the same universe. 

It shifts capital toward the more cyclical segment, making returns dependent on which segment leads across cycles.

This pattern should not be viewed as a structural guarantee of outperformance. It reflects historical cyclicality between two segments under specific market conditions, and can change if leadership dynamics shift.

The key takeaway is that long-term returns depend not only on index constituents, but on how capital is allocated across segments that behave very differently across cycles.

 

4 What the Indices Actually Contain

The earlier discussion focused on how Nifty 50, Nifty Next 50 and Nifty 100 behave across market cycles. But the underlying reason becomes much clearer once we examine how weights of individual components are distributed within these indices.

Although all three indices are built from the same broad universe, the return influence of individual stocks inside them is very different. Nifty 100, despite formally containing both segments, remains heavily influenced by the largest Nifty 50 constituents because of market-cap weighting.

Chart showing top holdings comparison of Nifty 50 versus Nifty Next 50 and their effective weight inside Nifty 100 (all data as of 30Apr2026) >

 

The contrast is immediately visible. As shown in the above table, the top five Nifty 50 constituents account for 37.3 per cent of Nifty 50 and still retain a combined weight of 30.5 per cent inside Nifty 100. 

In contrast, the top five Nifty Next 50 constituents account for 17.2 per cent of Nifty Next 50, but collectively shrink to just 3.1 per cent inside Nifty 100.

This asymmetry is important. The dominant Nifty 50 companies continue to exert significant influence even after being absorbed into Nifty 100, while the strongest Nifty Next 50 constituents become heavily diluted within the broader index structure.

As stated above, the top five Nifty Next 50 constituents carry a combined weight of 17.2 per cent inside Nifty Next 50, but only about 3.1 per cent inside Nifty 100. Which means, a weight difference of roughly 14 percentage points. 

During periods when these more cyclical stocks in Nifty Next 50 outperform strongly, a fixed 50:50 allocation between Nifty 50 and Nifty Next 50 captures much more of that upside compared to Nifty 100, where the influence of Nifty Next 50 is substantially diluted.

The same pattern is visible at the aggregate index level as well. Based on the constituent weights as of 30Apr2026, stocks belonging to Nifty 50 collectively account for 81.7 per cent of Nifty 100, while stocks from Nifty Next 50 account for only 18.3 per cent. 

In effect, Nifty 100 remains heavily driven by Nifty 50 stocks despite formally containing both segments.

This helps explain why Nifty 100 returns tend to behave much closer to those of Nifty 50 despite containing the same broader universe of stocks.

The divergence between Nifty 100 and a fixed 50:50 allocation therefore arises not from the stocks themselves, but from the different weights assigned to those stocks within the Nifty 100 index structure.

 

5 What Could Make This Relationship Reverse? 

The historical data discussed earlier show that a fixed 50:50 allocation between Nifty 50 and Nifty Next 50 often produced different outcomes compared to Nifty 100. But this should not be interpreted as evidence that the 50:50 approach will always outperform in the future.

In reality, the relationship can reverse for long periods depending on market leadership.

If large-cap stocks dominate market returns over an extended cycle, Nifty 100 may outperform a 50:50 allocation because of its much higher exposure to Nifty 50 constituents. 

This is especially likely during periods characterised by risk aversion, global uncertainty or weak liquidity conditions, when investors tend to prefer larger and more established companies.

The earlier historical examples themselves illustrate this cyclicality. During 2011, Nifty Next 50 fell much more sharply than Nifty 50, causing the 50:50 combination to underperform Nifty 100. Similar periods can occur again in future market cycles.

It is also important to recognise that market-cap weighting is not inherently flawed. One of its strengths is that it automatically allocates more capital toward companies that have already become economically dominant within the market. 

This can reduce volatility and improve resilience during difficult market environments.

By contrast, a fixed 50:50 allocation structurally assigns a much larger role to the more cyclical Nifty Next 50 segment. That can improve upside participation during strong phases, but it can also amplify downside volatility during weaker periods.

In other words, the earlier outperformance of the 50:50 structure reflects a particular historical interaction between stability and cyclicality. It is not a permanent structural advantage.

The broader lesson is that even small changes in allocation methodology can materially alter return behaviour over long periods, despite starting from almost the same underlying stock universe.

 

6 Passive Investing Is Not Truly Neutral in Allocation 

One of the most interesting insights from this thought experiment is that passive investing is not truly neutral in  allocation as it first appears.

[Note: This thought experiment was inspired by a Business Line article on Nifty 500 equal-weight combinations, which prompted a deeper look into index construction and capital allocation.] 

At a surface level, Nifty 100 and a 50:50 combination of Nifty 50 and Nifty Next 50 appear very similar because both invest in almost the same underlying companies. 

But the return behaviour can still differ meaningfully because the weighting structure itself changes how capital is distributed across segments.

In other words, index construction is not merely a technical detail. It directly shapes portfolio behaviour.

Market-cap weighted indices such as Nifty 100 naturally allocate more capital toward already dominant companies, which tends to anchor performance closer to large-cap behaviour. 

A fixed 50:50 allocation approach, by contrast, intentionally increases participation from segments that may behave more cyclically.

Neither structure is inherently superior. They simply represent different ways of distributing capital across the same market universe.

This is perhaps the broader lesson from the entire exercise. Even within passive investing, allocation methodology matters. 

Two portfolios can own almost identical stocks and still generate very different outcomes over time because weights, concentration and segment exposure all influence return behaviour across market cycles.

7 Summary 

This thought experiment began with a simple question: how can two portfolios built from the same underlying universe of stocks produce meaningfully different returns over time?

The comparison between Nifty 100 and a 50:50 allocation of Nifty 50 and Nifty Next 50 shows that the answer lies not in the stocks themselves, but in how they are weighted. 

Even when the underlying constituents are broadly similar, differences in allocation rules can lead to different exposure to market cycles, concentration, and segment behaviour.

Over shorter periods, this effect can appear quite pronounced, especially when one segment significantly outperforms the other. Over longer periods, the same mechanism continues to operate, but with outcomes that depend heavily on which segment leads during different phases of the market cycle.

The key insight is not that one approach is universally better than the other. Rather, it is that index construction itself embeds an allocation choice. 

Market-cap weighted indices like Nifty 100 naturally lean towards large-cap stability, while an equal allocation approach increases participation from more cyclical segments.

For investors, this shifts the way indices should be viewed. They are not just passive representations of the market, but structured ways of distributing capital across different parts of the market.

In that sense, the difference between Nifty 100 and a 50:50 allocation is less about what is being owned, and more about how much is being owned in each part of the market.

Check below for references and additional data. 

 

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References:

Nifty Return Profile

Nifty Indices factsheets

NSE Index Dashboard monthly - PDF for Apr2026

NSE Index Tracker (tracker for all NSE indices), for example, Nifty 50 

Nifty Indices Methodology document May2026 

Tweet 24May2025 Nity50-NiftyNext50-Midcap150-Smallcap250 mix outperforms single Nifty 500  

Business Line article 23May2026 Why This Nifty 50-Midcap-Smallcap Mix Crushes the Nifty 500 -- it shows equal allocation to Nifty 50, Nifty Next 50, Nifty Midcap 150 and Nifty Smallcap 250 outperforms Nifty 500 in majority periods, based on 10 year rolling returns over a 20 year period

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Additional data:

Chart showing TRI returns of Nifty 50, Nifty Next 50 and Nifty 100 from 2006 to 2026 (2026 YTD returns are as of 22May2026) >

 

 

 

Why Indian Equity Returns Look Different in Dollars 15May2026

Why Indian Equity Returns Look Different in Dollars 15May2026

 

Follow @vrk100

 

(This is my 513th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.

The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. 

Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

Indian stock market returns can look very different when measured in rupees versus US dollars. The difference is not driven by company performance, but by currency movement over time.

India Equities in a Global Lens:

For investors outside India, the story does not end with stock performance. Returns are also shaped by changes in the Indian rupee against the US dollar, which means the same market can deliver different outcomes depending on the currency in which it is viewed.

Two Ways of Looking at the Same Market:

The BSE Sensex and the BSE Dollex 30 are used as proxies for the Indian equity market. Both represent the same basket of 30 large, liquid and financially sound Indian companies. The only difference is currency denomination. 

The Sensex is measured in rupees, while the Dollex 30 expresses the same performance in US dollars after accounting for currency movement.

Because they track the same underlying companies, any gap between them is not about stock selection. It is entirely driven by currency.

Where Currency Changes the Story:

For a domestic investor, returns are straightforward. If the Sensex rises, wealth in rupee terms rises. For a foreign investor, however, there is an extra layer. 

Even if Indian stocks rise, a weakening rupee reduces the return when converted back into dollars. 

Similarly, a stronger rupee can boost foreign investor returns even when the underlying stock performance remains the same.

This is why the same market can feel stronger or weaker depending on the currency perspective.

What the Data Show:

Chart showing Indian stock market returns in local currency (Indian rupee) versus US dollar terms: BSE Sensex vs BSE Dollex 30:

 

The chart above compares annual returns and trailing returns of the Sensex in rupee terms and the BSE Dollex 30 in dollar terms. It also shows the currency impact, which reflects the effect of rupee movement against the dollar over time.

A few patterns become clear from the data. Indian equities have delivered solid returns in local currency terms over the years. However, the returns in dollar terms are consistently lower in most periods. 

The difference is primarily explained by gradual depreciation of the rupee over time.

Examples from the Data Chart above:

In 2017, Indian stocks had a great year in rupee terms. The Sensex rose by 27.9 per cent. But the BSE Dollex 30, which reflects the same market in US dollars, actually gained even more, that is, 36 per cent. 

Why? Because the rupee strengthened (by about 8%) against the dollar that year. 

A stronger rupee amplified returns for foreign investors, giving them more dollars for each rupee of investment, even though the stock market itself performed the same.

Contrast this with 2022. The Sensex rose modestly by 4.4 percent in rupees. However, the Dollex 30 fell by 6.3 per cent in dollar terms. The reason: the rupee weakened (by about 11%) against the dollar. 

Even though the Indian market delivered a small positive return locally, foreign investors saw a loss in their home currency. A depreciating rupee reduced their dollar-denominated returns.

Trailing Returns: From an FPI perspective, the Sensex’s 11.4 per cent annualised return, over the past 10 years, drops to 7.5 per cent in dollar terms, meaning currency (India rupee depreciation) has reduced foreign investors’ returns by nearly 4 percent per year.

To put differently: Ten years can make small annual differences look very large. A 100 rupee investment, at a CAGR of 11.4 per cent, in the Sensex 10 years ago would today be worth about 295 rupees. That is a gain of 195 percent.

But the same market looks very different in dollar terms. A 100 dollar investment, at a CAGR of 7.5 per cent, in the BSE Dollex 30 would have grown to only about 205 dollars, a gain of 105 percent.

The annual return gap may appear to be only about 4 percentage points. Over long periods, however, compounding turns that into a very large difference in actual wealth creation. 

These examples show how currency movement can either enhance or reduce returns for foreign investors, independent of how the stock market itself performs. 

FPI Behaviour:

Foreign portfolio investors (FPIs) allocate capital based on expected returns in their home currency, making currency movement an important input in their decisions. A weakening rupee can reduce dollar returns and act as a headwind, while a stable or stronger currency improves expected outcomes. 

However, currency is only one of several drivers, along with earnings growth, valuations, interest rates and global risk conditions.

A common market narrative is that sustained rupee depreciation alone explains weak foreign inflows into Indian equities. While currency matters, FPI flows are influenced by a combination of macro and market factors rather than a single variable.

Why Foreign Investors Care About This:

Foreign investors evaluate returns in their home currency, so what matters is not just stock performance but the converted value in dollars or euros. This is why a strong domestic market can appear weaker in dollar or euro terms when the rupee depreciates.

Conversely, a stable or strengthening rupee can enhance dollar returns, allowing foreign investors to outperform local investors even from the same market performance. 

The Bigger Lesson:

Investing in any country is not just a bet on companies. It is also a view on currency. Over long periods, currency movement can quietly add or subtract meaningfully from equity returns when seen from a global perspective.

This is why global investors always evaluate markets on a currency adjusted basis. It is not a different market. It is simply a different lens on the same market.

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References:

See Update 03Jan2026 with charts 162 and 163 in blog: Forex Data Bank - to check the data of Indian rupee depreciation versus the US dollar (27 years data)

Tweet 20Jan2026 Sensex at 40 years  - Sensex price returns and TRI

Value Research BSE Indices 

Sensex factsheet

BSE Dollex 30 factsheet 

What is Sensex and Its Importance in the Indian Stock Market 17Dec2009 

 

Understanding the Rhythm of Quarterly and Annual Results in India 13May2026

Understanding the Rhythm of Quarterly and Annual Results in India 13May2026

 

Follow @vrk100

 

(This is my 512th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.

The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. 

Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

Companies in India announce their financial performance at quarterly / annual intervals so that investors and the public can understand how they are doing. 

They follow fixed timelines set by regulators, ensuring transparency and structured reporting. This also creates what is called earnings season in the stock market. The article includes a case study of a paint company at the end. 

Chart showing Reporting Window / Timelines for financial results declaration by listed companies in India (SEBI norms) >

 
What are quarterly and annual results in a company?

Quarterly results are financial updates published every three months (calendar quarters) showing performance during that period. Annual results cover the full financial year and give a complete picture of the company’s performance.

Why do companies need to declare financial results regularly?

Regular results help investors, regulators and the public track a company’s performance. It ensures transparency and reduces information gaps in the market.

Who sets the rules for when companies must announce results in India?

The rules are set by India's capital market regulator Securities and Exchange Board of India (SEBI) through listing regulations that apply to listed companies in India. 

The SEBI timelines are as per Regulation 33 of SEBI (LODR) Regulations.

What is the difference between quarterly results and annual results?

Quarterly results cover a three-month period, while annual results cover the entire financial year and are usually audited.

Why do most Indian companies follow an April to March financial year?

Many Indian companies follow government and tax reporting cycles, which are based on April to March, making compliance and reporting more aligned.

Do all companies in India follow the same financial year?

No, some companies, typically companies with a foreign parent, follow a January to December financial year (however, most listed companies follow April to March except some foreign companies).

Such companies with a foreign parent follow different financial years not due to SEBI rules, but to align with their global parent companies for easier consolidation and reporting. 

Some examples of companies in India following Jan-Dec financial year >

ABB India
Castrol India
Crisil Ltd
Elantas Beck India
Hexaware Technologies
KSB Ltd
Schaeffler India
Varun Beverages

Exceptions to typical foreign companies reporting:

There are some exceptions to Jan-Dec reporting by foreign companies.

For example, Kennametal India follows a July–June financial year to match its US parent’s reporting cycle, enabling smoother group consolidation.

Siemens Ltd, likewise, follows an October–September financial year to align with its Germany-based parent, ensuring consistent global reporting. 

How much time do listed companies get to announce quarterly results?

As shown in the above chart, listed companies in India generally get 45 days after the end of a quarter to announce results, while annual results are allowed up to 60 days. 

During the COVID-19 pandemic in 2020, SEBI gave a one-time extension to the result declaration timelines for listed companies.

Why is there a 45-day rule for some quarters and a 60-day rule for year-end results?

Quarterly results are simpler and quicker to prepare, while annual results require full auditing and therefore more time is given. 

What happens if a company delays its results?

Delays can lead to regulatory scrutiny, penalties and loss of investor confidence, since timely disclosure is mandatory for listed companies.

Do stock prices move when results are announced?

Yes, stock prices often move because results provide new information about earnings, growth and future outlook.

Why do companies often announce results around the same time?

Because most companies follow the same reporting deadlines, results tend to cluster around the same period, creating earnings season.

Earnings season is the period when many companies announce their quarterly results, usually spread across a few weeks. 

Which companies announce results early in the season?

> Banks and financial services companies
> IT services companies
> Large listed companies with strong reporting systems

Which companies usually announce results later in the season?

> Manufacturing companies
> Infrastructure and construction companies
> Diversified industrial groups, with various subsidiaries
> Companies with multiple subsidiaries or complex operations

Note: Subsidiaries typically announce their results first because their financials are later consolidated into the parent company’s overall results. Only after that can the parent finalise and report its own consolidated results, such as in large groups like Larsen & Toubro, which has listed susidiaries, like, LTM, LTTS and L&T Finance. 

Why do some sectors report earlier than others?

It depends on how quickly financial data is collected, verified and audited. Companies with simpler structures and faster accounting systems tend to close their books earlier, while complex businesses take more time due to consolidation and verification needs.

Do banks and financial companies follow the same result timelines?

Yes. They follow the same SEBI deadlines as all listed companies. However, they usually report earlier within the window because their systems are more standardised and financial data is available faster.

 

To sum up

Quarterly and annual results in India follow a clear timeline set by regulators. These deadlines ensure timely disclosure and consistent reporting across companies. 

Together, they create the earnings season that investors closely track.

A case study below tracks a paint company’s result announcement timelines over 21 quarters for reference. 

This information is for general awareness and should not be construed as investment advice; companies mentioned are for informational purposes only. 

 

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Additional information:   

Case Study: Result Timeline Pattern of a paint company (21 Quarters data):

This analysis is based on 21 quarterly results announcements, by this paint company, from FY2020-21 to FY 2025-26.   

Quarterly results announcements:

Across the 21 quarters (Mar2021 to Mar2026) analysed for Asian Paints, a clear structural shift in result announcement timelines is visible. Between 2021 and 2023, quarterly results were consistently declared within 20–23 days after quarter-end, indicating a fast and tightly clustered reporting cycle. 

However, in 2024 and 2025, this shifted significantly to an average of 37 days, showing a clear move toward longer timelines and higher variation.

Annual results announcements:

A similar trend is visible in annual results (Jan–Mar quarter). Between 2021 and 2025, results were typically announced within 40 days on average, but in Jan–Mar 2026, the timeline is extended sharply to 59 days, nearly utilising the full regulatory window.

By the way, the company will be reporting its Jan-Mar2026 quarterly results on 29May2026.

Overall, the data suggest a transition from a fast, predictable reporting pattern to a more extended timeline across both quarterly and annual results, likely reflecting increasing consolidation complexity and more extensive review and disclosure processes.

Even for a technology-efficient company like Asian Paints, faster data processing (or better AI adoption) may not necessarily translate into earlier result announcements, as statutory reporting timelines are primarily driven by audit, consolidation and governance approval cycles. 

 

Possible factors contributing to longer reporting timelines at a large, corporate governance-focused company like Asian Paints include:

1) Consolidation complexity and a preference for accuracy over speed: 

Reporting across multiple subsidiaries and geographies may extend the time required for final consolidation. Mature large-cap companies often prioritise completeness and accuracy over early publication within the allowed window.

2) Business diversification, scale and operational complexity: 

Expansion into adjacent categories such as home improvement, along with large distribution networks and extensive supply chains, may add additional layers of accounting / reconciliation and inventory validation before final reporting.

3) Macroeconomic uncertainty: 

Volatility in input costs (such as prices of crude oil derivatives), demand conditions and currency movements may require additional validation before finalisation.

4) Stricter disclosure review and higher audit scrutiny: 

In a tighter regulatory environment, strong governance standards and more detailed audit procedures may lead to more extensive internal checks and longer review before final approval.

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References:   

BSE Results Calendar 

In India, Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements, LODR) Regulations, 2015 is the rulebook for how listed companies must report their financial health to the public and stock exchanges. 

Tweet 13May2026 - MOSPI postpones annual GDP estimates deadline to June 7th from last working  day of May

Tweet 11May2026 - US SEC proposes to make quarterly results declaration optional 

Asian Paints Results

Screener.in Asian Paints

 

 

 

Earnings Quality: Understanding Cash Conversion in Stock Analysis 11May2026

Earnings Quality: Understanding Cash Conversion in Stock Analysis 11May2026

 

Follow @vrk100

 

(This is my 511th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.

The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. 

Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.) 

Most investors in India focus on net profit growth when analysing companies, but this can be misleading. A company can show rising profits while struggling to generate actual cash.

This blog explains how to compare Cash Flow from Operations (CFO) with Net Profit to understand earnings quality, durability and real cash generation. 

It is a simple framework used by serious investors to judge whether profits are real or just accounting entries.

 

(article continues below) 

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Related blogs:

Negative Cash Conversion Cycle and Negative Working Capital 15May2023 

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1) Why are cash flows important for analysing a stock or company’s business?

Cash flows show the actual money entering and leaving a business. While profit is an accounting measure, cash is what pays salaries, repays loans, funds expansion and rewards shareholders. 

A company that generates strong cash flow is financially more stable, even if reported profits fluctuate in the short term.

2) Why is cash flow often more important than net profit?

Net profit is based on accounting rules, estimates and timing assumptions. Cash flow reflects real transactions. In some cases, companies can show profits on paper but struggle to collect money from customers or manage working capital. 

This is why investors often ask a simple question: how much of this accounting profit is turning into real cash?

3) How much of this accounting profit is turning into real cash?

This is exactly what the CFO vs Net Profit comparison measures. If a company earns Rs 100 crore in profit but generates only Rs 60 crore in operating cash flow, then a significant portion of profit is not converting into cash. 

The gap of Rs 40 crore usually reflects money not yet collected from customers (receivables), unsold inventory or other timing differences in working capital between recording profits and receiving cash.

For example, a power equipment manufacturer may sell machinery worth Rs 25 crore in Feb2026, but receive the cash only in Apr2026 (the next financial year). 

The sale is recorded as revenue in FY 2025–26, but the cash inflow appears in FY 2026–27, creating a timing mismatch between profit and cash flow.

Over time, this gap becomes important for understanding business quality.

4) Why is multi-year CFO versus NP better than single-year ratio?

A single year can be distorted by temporary factors like inventory build-up, delayed receivables, tax adjustments or one-time payments. Multi-year analysis smooths out these fluctuations and shows whether the business consistently converts profit into cash over time. 

It helps identify structural trends rather than short-term noise.

To see why this matters in practice, let’s look at a real example.

5) CFO versus Net Profit Comparison: Real example:

Chart showing CFO vs Net Profit Comparison of a listed MedTech firm in India with data for the past seven years: Cumulative cash flows versus Cumulative net profit >

(click on the chart to view better)

We calculate the cash conversion ratio (CCR) as CFO divided by net profit. 

This MedTech company (data in chart above) shows a strong long-term earnings quality profile, with a 7-year cash conversion ratio of around 96 percent and 5-year ratio of 89 per cent, indicating that most of the reported accounting profits are ultimately backed by operating cash flows. 

This suggests a fundamentally cash-generative business over a full cycle. However, the shorter-term picture shows some moderation, with 2-year cash conversion dropping to around 85 percent. 

This indicates that while the long-term model remains sound, recent periods may reflect temporary working capital pressures or timing gaps between profit recognition and cash collection, which are worth monitoring but not yet structurally concerning given the historical consistency.

6) What are the shortcomings of focusing only on CFO vs NP?

CFO vs NP is useful, but not sufficient on its own. It does not explain why cash conversion is weak or strong. A proper analysis must also look at working capital components like receivables, inventory and payables (commonly known as Cash Conversion Cycle analysis). 

7) Why is earnings quality important in investing?

Earnings quality tells us how reliable a company’s profits are. High-quality earnings are backed by cash, repeatable business activity and stable operations. Low-quality earnings may come from aggressive accounting or temporary factors. 

Investors prefer companies where profits are sustainable and backed by actual cash generation. 

8) Why does CFO vs NP depend on sector?

Different industries behave differently. In FMCG companies, cash conversion is usually very stable and close to 100 percent or more. In contrast, capital goods infrastructure, or government-dependent businesses may have long payment cycles, leading to lower or more volatile cash conversion.

Some industries / sectors naturally have lower cash conversion:

Infrastructure
EPC/construction
Real estate
Defence
Telecom buildout phases
Rapidly scaling retail
Businesses with long receivable cycles

Meanwhile, sectors like the following usually show very high cash conversion:

FMCG
Software
Consumer brands
Stock / commodity exchanges
Asset-light services

Therefore, interpretation must always be industry-adjusted.

9) Why should we evaluate earnings quality, durability and cash realisation together?

Earnings quality tells us how reliable profits are. Durability tells us whether those profits can continue in the future. Cash realisation tells us whether profits are actually converting into usable money. 

All three together provide a complete picture of business strength.

10) Why is it easier to manipulate net profit than cash flows?

Net profit includes accounting estimates such as revenue recognition, provisions, depreciation, and other non-cash adjustments, which can involve judgment and timing differences. 

Cash flows are harder to manipulate because they reflect actual bank movements of money into and out of the business.

While not impossible, sustained manipulation of cash flows is significantly more difficult than adjusting accounting profits.

A classic example is the case of erstwhile Satyam Computer Services, where reported profits and even cash balances were falsified for years through egregious accounting misstatements. 

Such cases are rare, but they highlight why investors often prefer to verify earnings quality through cash flow analysis rather than relying only on reported net profit.

11) Why use a multi-year CFO vs NP window?

A multi-year window helps remove noise from business cycles and one-time events. It allows investors to understand whether cash conversion is structurally strong or weak. This is especially important in industries where performance can vary significantly year to year.

12) When should investors worry if CFO vs NP is below 80 percent for multiple years?

A consistently low cash conversion ratio (CCR) below 80 percent over several years may indicate weak earnings quality, depending on the industry. It could suggest issues such as poor receivables collection, inventory build-up or aggressive accounting. 

However, interpretation must always consider the nature of the business, as some sectors naturally have lower cash conversion. 

The 80 per cent threshold in not a verdict, but it is a signal to investigate further into receivables, inventory, cash flow trends and industry benchmarks before drawing any conclusions about financial health. 

What are the consequences of consistently low cash conversion ratio (CCR) of, say, less than 80 per cent or 75 per cent over long periods of say, over five years (it does not automatically mean fraud or a bad company, but a warning sign):

> Prolonged working capital cycle

> Higher dependence on debt financing

> Rising interest and finance costs

> Weak cash conversion and poor earnings quality

> Increased financial and liquidity risk 

13) International experience:

One could observe such earnings–cash divergence in global companies as well, ranging from genuine operational stress to outright fraud.

For example, Boeing has at times reported healthy profits on paper while generating weak operating cash flows, driven by factors such as prolonged aircraft programme delays, regulatory grounding of its 737 MAX fleet and the complexities of long-term contract accounting

In Europe, companies like Wirecard AG highlighted how aggressive and outrageous accounting practices can severely distort reported earnings, reinforcing why cash flow analysis is a critical validation tool in financial analysis. 

 

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Additional info for Your Own Exercise:   

 

P.S. 2: Two images showing data of CFO vs Net Profit data for two companies >

Based on the data given in the images, readers can do their own exercise further on the two companies' financial statements and search for answers as to why the cash conversion ratio looks odd or out of place. 

Image showing data of an Aerospace & Defence listed firm in India: the company suffers from cash flow problems due to government contracts and nature of its business to some extent  >

Image showing data of an Alocoholic Beverages listed firm in India: this is an extreme case where CFO to net profit ratio has been consistently higher than 150% requiring readers to probe further its financial statements and find out what is contributing to the persistence of higher cash flows compared to net profit declared  > 

 

P.S. 1: Screenshots of the company for readers >

Screener.in

Three screenshots showing > Fundamentals, Peer comparison, cash flow and profit and loss statement of a MedTech firm Poly Medicure Ltd >