Monday, May 18, 2009

P/E Study: Past history

I did a study of the Nifty P/E Ratios from the NSE site.

What is a P/E ratio? It is the price to earning ratio. It is the number of times premium you are willing to pay for a current year profit.

Another thumb rule is your P/E ratio should be the % growth expected.

IT stocks had a P/E well in excess of 50-60 during their golden years.

On Jan 8th 2008, when the bull market peaked the P/E ratio was 28.3. In Oct'08 it bottomed out at 10.58.

During the period September 2007 to Jan 08, when the market got overheated, P/E was between 21 to 25.

At the time, world economy was motoring along.

Now, how much is the P/E now?

At Nifty 4300, a P/E of 20.5.

If you are expecting a growth of 21 pc going forward, then buy else sell and stay out.

21 pc means, basket of Nifty stocks will show a growth of 21 pc Y-0-Y.

No comments:

Post a Comment