The maturity of the Indian market has been phenomenal in the last 10 years, where the journey from FY 2014–15 to FY 2024–25 showcases the Indian equity market's evolution from a sentiment-driven, valuation-expansion story to a more mature, earnings-led trajectory.
The macroeconomic growth of India has set the stage for corporate performance in the long term, but the same performance reflection took time to come. For example, in FY 2015–16, despite GDP growing at 10.3%, Nifty fell -4.06%, with EPS shrinking and valuations contracting. But where we Indians failed to capitalise is that we took the policy reforms as the market growth momentum, rather than believing in the long term, we too focused more on the short-term bets. It has been proved in this article that over the long term, markets reward companies with consistent and robust earnings growth. This is evidenced by the 10-year average alignment of EPS and Nifty returns.
Over the last decade, the Indian equity markets have witnessed a fascinating interplay between macroeconomic performance, corporate earnings, and investor sentiment. Indian has become the 4th largest economy and is focusing aggressively on increasing the manufacturing share of the demography, balancing against the service industry. The stock market has also witnessed a phenomenal growth in the last 5 years, with corporate profits reaching new highs and stock market capitalisation reaching new levels.
The comparative analysis of Nominal GDP Growth, Nifty 50 Annual Returns, and EPS (Earnings Per Share) Growth from FY 2014–15 to FY 2024–25 offers deep insights into what truly drives equity market performance — earnings, valuation multiples, or broader economic activity.
Nominal GDP grew at an average of 10.65%, EPS at 13.56%, and Nifty 50 delivered 13.38% annualised returns. The tight correlation between EPS and Nifty returns validates a core market principle: in the long run, stock market returns tend to align with corporate earnings growth. However, beneath this average lie years of stark divergence, marked by valuation re-ratings, economic shocks, and policy-driven cycles. The said analysis also proves that wealth is created in the long term despite short-term volatility.
Valuations, captured by the Price-to-Earnings (PE) ratio, have played a critical role in modulating returns. For instance, in FY 2014–15, Nifty delivered a stellar 31.39% return, significantly higher than the 5.29% EPS growth, due to a substantial PE expansion of 22.22%. Similarly, FY 2020–21 (the pandemic year) saw a rare scenario where EPS growth plunged by -9.65%, yet Nifty rose 14.9%, thanks to an extraordinary PE multiple surge from 21.4 to 40.4 — a direct outcome of massive liquidity infusion and hope trade post the COVID crash.
Years like FY15, FY17, FY19, and FY24 saw positive Nifty returns despite modest or negative EPS growth, mainly due to PE expansion. Conversely, FY16, FY20, FY23, and FY25 reflect periods where PE contraction led to muted or subdued returns, even when EPS grew. On the other hand, from FY22 onwards, EPS growth has become a stronger driver of market returns, indicating a shift from valuation re-rating to fundamentals. Years with sharp PE expansion tend to be followed by mean reversion. Such rallies may not be sustainable if not backed by earnings.
FY23 & FY24 together represent a transition where earnings revival supports returns, while PE multiples stabilise or decline. FY15 and FY21 are classic cases where market performance outpaced earnings, driven by PE expansion, often reflective of excess liquidity, sentiment, or re-rating expectations.
By 2030, the last 10 years' average of the Indian markets from all macro and financial parameters will be a new high compared to the period of 2010-2020. This will set a new stage for the measurement of earnings and growth potential, which no one is speaking about now. This will be the new India benchmark by 2030.
The said analysis proves that Indian markets and investors make investments based on PE and not based on EPS, which is linked to the GDP growth for the long term. The PE ratio is a clear market-driven expected game plan that leads to unrealistic projections, nullifying the macro development being reflected in the EPS. EPS is the key deciding factor for FII’s investments. When they find a gap between EPS and PE, they exit to balance the valuations and earnings projections. While GDP growth provides a supportive environment, stock performance is ultimately linked to bottom-up earnings metrics and valuation discipline. For long-term wealth creation, for long-term investors, this reinforces the importance of focusing on fundamentals over forecasts, and on corporate earnings over macro narratives.
Now comes when Indians will find significant wealth creation. Well, as India continues to grow economically, the real winners in the market will be those who can identify sustainable earnings growth, avoid valuation traps, and remain patient through cycles. The Nifty 50 have come back to its all-time high, but did the investors' wealth? We all know that by March 2025, investor wealth had declined by ₹85 lakh crore from the market’s peak in September 2024. A single day, April 7, 2025, saw a ₹19 lakh crore loss when the Sensex dropped 4.37% (3,291.95 points) to 72,073.14 and the Nifty fell 4.62% (1,058.30 points) to 21,846.15. Net losses for retail investors in FY25 reached ₹1.06 lakh crore, a 41% increase from ₹74,812 crore in FY24, with over 91% of traders ending in the red. The irony is that all these portfolios did not perform well in comparison to the market since all these investments were attracted by PE and not EPS.
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