Nifty PE Ratio
PE Ratio means Price To Earning Ratio. P/E ratio or Price To Earning Ratio is calculated by dividing the price of any stock or an index (or sector) by the earning of that stock (all stocks in case of an index) per unit. Nifty PE Ratio means the PE ratio of the Nifty 50 Index. Investors across the world very commonly use the PE ratio as a valuation tool to find out if the given stock is overvalued, reasonably valued, or undervalued when we compare the current value to its historic values or with other stocks in the same sector or other indices (Nifty 500, Nifty Next 50 etc..).
A high PE Ratio means that currently the price of stock or an index is high relative to its earnings and could also possibly mean that it is overvalued. Whereas, a low PE Ratio may indicate that the current stock or index is available to purchase at a low price relative to its earnings.
However, a high PE Ratio does not always indicate that the given stock or index is overvalued. It could also mean that investors are expecting higher growth from the company or the sector compared to the overall market. Similarly a volatile market, earning make of a company (standalone vs consolidated) could change these ratios drastically. Hence an investor always look at multiple valuation metric before arriving at any conclusion.
Investors use the PE ratio along with other valuation metrics like Price To Book Value and Dividend Yield to determine a stock or index’s value. As an analogy, you can think of real estate where a buyer compares different property by looking at their price and also the rental income it could generate along with other aspects. Property which generates higher rent & is available at a lower price is considered a better deal as compared to the other one. In short, the PE Ratio, PB Ratio, and Dividend Yield in the equity market are similar to the rental yield in the property market. Hence always enter into a stock or an index or a sector only after looking at these valuation metrics.
Nifty PE Ratio website helps you look at these key metrics for all major NSE indices as generated in easy to understand visualized manner. It uses advanced charting tools to color the PE Ratio, PB Ratio, and Dividend Yield values in a manner such that investors can easily see the current index valuation as compared to its historic values. It also analyses the PE Ratio, PB Ratio, and Dividend Yield values using the statistically important Median and standard deviations. This helps understand the long term trend and to see how far the current valuation is with respect to its historical mean. Investors can use this knowledge in making their investment decision independently. e.g. Which sector/index is undervalued (to make a possible entry) or which sector/index is overvalued (to possibly exit or avoid entering into). However, this must not be taken as investment advice (we are not SEBI registered investment advisor) and an investor must make his own due diligence in order to avoid any possible loss. Please look at the frequently asked questions (FAQ section) and the disclaimer section to know more details.