A Mint analysis of 3,700 BSE-listed companies finds that 212 stocks have delivered over 30% returns in the past year even as their price-to-earnings (P/E) ratios declined. This rare divergence suggests a shift in investor focus — from re-rating-driven gains to core earnings performance.
The list spans four large-cap and nine mid-cap stocks, but is dominated by small caps. Their outperformance is largely anchored in fundamentals, with 72% reporting healthy core earnings and strong growth in earnings per share (EPS), excluding exceptional items.
When a falling P/E isn’t a red flag
The P/E ratio, one of the most closely tracked metrics in equity markets, measures how much investors are willing to pay for each rupee of earnings. A rising P/E typically reflects optimism about a company’s growth prospects and can amplify share-price gains. Conversely, a declining P/E — or de-rating — is often seen as a sign of caution, driven by macro concerns or uncertainty around earnings visibility.
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While the ideal scenario sees rising earnings fuel both share price and P/E growth, these 212 stocks offer a different narrative. Their earnings have surged, even as valuations have compressed.
“The fall in P/E ratios signals caution. But this divergence reflects a nuanced market dynamic where returns are primarily driven by robust core performance rather than investor-driven re-rating,” says Bhavik Joshi, research analyst at Invasset PMS. “This trend reflects a shift in market behaviour.”
De-rating typically signals scepticism, Joshi explained. It can be due to global headwinds, sector-specific concerns, or muted earnings expectations. But when paired with sharp EPS growth, it can also indicate market mispricing rather than fundamental weakness.
So what’s holding back re-ratings?
“Short-term global uncertainties and a wait-and-watch approach toward earnings consistency have contributed to the market’s reluctance to re-rate companies,” said Ranju Rajan, head of managed accounts at Axis Securities. “However, the Indian economic structure continues to strengthen on several fronts.”
Fundamentals take charge
For these select stocks, fundamentals clearly took charge.
Take telecom giant Bharti Airtel, the standout large-cap performer in this group. Its P/E dropped sharply from 139x to 56x, yet the stock gained 35% over the year. The real driver? A tripling in EPS (excluding one-offs or exceptional gains), from ₹11 in FY24 to ₹35 in FY25. The company’s EPS is projected to rise further to ₹69.23 by FY27, even as the P/E is expected to fall to 26.86x, as per Bloomberg estimates.
Among mid-caps, GE Vernova T&D India has posted a return of 69%, with P/E falling from 186x to 94x. A sharp improvement in execution helped push EPS to ₹24 in FY25, up from ₹7 the previous year. EPS is projected to reach ₹42 by FY27, with valuations expected to continue easing.
Hitachi Energy India saw its stock rally 76% while its P/E declined from 270x to 213x, supported by EPS nearly doubling to ₹90. Further, Laurus Labs climbed 37% with EPS growing to ₹7, while its P/E fell to 87x from 108x. Both firms are expected to continue delivering double-digit EPS growth over the next two years.
Fortis Healthcare, which saw its EPS rise to ₹2 in FY25 from ₹1 in FY24, delivered a 53% stock return. Bloomberg estimates point to robust earnings growth ahead, with EPS projected at ₹13.7 in FY26 and ₹17.8 in FY27 — potentially bringing down its projected P/E to 52x and 40x, respectively.
“Despite strong earnings and solid returns, companies like Bharti Airtel and GE Vernova have seen valuation multiples compress, reflecting a market shift toward core performance over re-rating,” said Joshi. “This trend highlights the need to focus on fundamentals and earnings as key drivers of value.”
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For now, macro trends and earnings performance remain key to market direction.
“In the current environment, large caps and select mid/small caps with strong balance sheets are well-positioned to outperform. In the near term, macroeconomic indicators and earnings will continue to guide market direction. As cyclical and structural drivers align, re-rating opportunities will emerge, though this will be a gradual recovery which will be sailed through by investor patience to identify turnaround stories,” said Rajan.
