INCOME TAX17 Sept 2026
Stock returns vs earnings: Why strong profit growth may not always make you money
A new investor letter from Carnelian Asset Management points out that strong profit growth does not always give good stock returns. HDFC Bank's profits grew about 20% between 2019 and 2026, yet the stock fell 5%, leaving investors with poor returns. When valuations fall like this, it is called de-rating. If you hold shares, check whether rising profits are actually reaching your returns.
Key Statutory Highlights
- Carnelian's study of 272 BSE 500 companies found that 110 of them de-rated by 5% or more between March 2016 and March 2026.
- Those de-rated companies grew profits at a 15% CAGR, but their market capitalisation grew only 10% CAGR.
- The 162 companies that re-rated grew profits at a 12% CAGR while their market capitalisation rose 17% CAGR.
Actionable Advice for Taxpayers / Founders:Review your holdings to see whether profit growth is actually reflecting in your returns, and consider checking with a financial adviser before assuming past-performing companies will keep rewarding you.
Statutory Disclaimer: TaxQue Shorts are AI-assisted editorial briefs for compliance awareness. This brief has not passed every source check; confirm the original notification before acting. This does not constitute formal legal or CA counsel.
TaxQue News Desk
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