123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Investing---Finance >> View Article

What Is Pe Ratio And How Does It Help While Investing In Indian Stock Market?

Profile Picture
By Author: Vamsi Krishna
Total Articles: 27
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

If you ever watched the proceedings of the share market live on TV or on the Internet, you must have noticed people mentioning `PE’ quite frequently. What is this PE they talk about, and why is such an important factor while investing in the Indian share market? PE is short for price-earning ratio, and if you want to make any money at all in the share market in India, it’s necessary for you to come to grips with it. To cut a long story short, PE is the market price per share divided by the earnings per share (EPS). You can also calculate the PE of the share market index. For instance, the PE of the Sensex for the year 2012-13 is 17.19.


So exactly how does the PE help you make investment decisions on the share market? Generally, a stock with a high PE means that the company is expected to have higher earnings growth. Stocks whose forecasted earnings are expected to be low will have a lower PE ratio.


Before we go further, we must understand what EPS is all about. EPS is simply the amount of earning per share. It is calculated as profit divided by weighted average common shares. It is another good ...
... indication of a share’s potential. High EPS means that the company is making good profits and therefore a good buy.


The price-earnings ratio shows how much investors are prepared to pay for each rupee of earnings and is useful while investing in the share market. For example, a PE ratio of 10 indicates that an investor is willing to pay Rs 100 for every Rs 10 of profits (earnings) that a company makes.


But before you rush to watch stock market live and pick up shares with high PEs, proceed with caution. There are other things you should look out for while investing in the Indian share market, like growth rates in the past. If a company’s growth rates in the past have been low, and its stock has a high PE ratio, there’s a good chance it may be overvalued. Only if a stock has shown demonstrably high growth rates in the past is a high PE justified.


Another problem while using PE ratio is that you can’t use it to compare companies across industries. For example, in the share market in India, you can’t use a PE ratio to compare, say a company in the IT sector and one in cement. These industries will have different growth rates, different expectations, levels of stability and so forth.


So in general, the PE ratio is a good tool for those who want to invest in the share market. But like all other tools, it must be used judiciously and in conjunction with other indicators.

Author Bio :

Ritish Kumar is a finance enthusiast and a keen observer of the Indian share market. In this series of articles, he talks about investing in stock market and staying profitable. share market live, share market in India

Total Views: 463Word Count: 498See All articles From Author

Add Comment

Investing / Finance Articles

1. The Investor Co - Trade With Confidence
Author: Taramalhotra

2. A Deep Dive Into The Leading Investment Banking Firms In Hyderabad
Author: Verity knowladge solutions

3. Can Foreigners Buy Property In Ajman?
Author: tarek

4. When Will Same Day Loans Online Be Paid Into My Bank Account?
Author: Jockey Ferguson is a financial adviser of Fast Pay

5. The Role Of Exclusive Solar Appointments In Accelerating The Solar Revolution
Author: Shan Tait

6. Wills Vs. Trusts: Key Insights For Effective Estate Planning
Author: Daniel Stewart

7. The Impact Of Financial Institutions Groups On Global Markets
Author: Verity knowladge solutions

8. How Property Investment Professionals Drive Long-term Wealth Creation
Author: Rick Lopez

9. Private Company Registration Bangalore | Company Incorporation
Author: mwseo

10. Ecommerce Loan With Overdraft Facility For Your Business
Author: Tarun

11. Does The Online Application Process For A Short Term Loans Require A Credit Check?
Author: Jockey Ferguson is a financial adviser of Fast Pay

12. The Impact Of Customer Reviews On Solar Appointment Leads
Author: Shan Tait

13. What Happens If You Don’t Use Insurance Money For Repairs?
Author: john

14. How To Earn Money Online Without Investment In Mobile?
Author: john

15. Is It A Good Idea To Give Money To Beggars?
Author: john

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: