Full form of PE ratio is price to earnings ratio and it is broadly used to identify how cheap or expensive a particular index such as Nifty — Nifty PE ratio - See the Nift PE Chart or a particular stock such as TCS — TCS PE ratio is.

For example, if PE ratio of a company is 25 it means that investors are willing to pay INR 25 for one rupee profit the company earns. Similarly if Nifty PE ratio is 23, it means investors are willing to pay INR 23 for one rupee profit collectively earned by all the companies that are included in Nifty. Nifty PE ratio is provided by Nse India website on daily basis.

Nifty P/E Ratio, Price/Book Ratio, Dividend Yield Chart

Nifty PE ratio is important as it is a measure of valuation of all the companies included in Nifty. A high Nifty PE multiple on the other hand is assumed to be expensive and warrants caution while taking investment decisions Booking profit or going short is a better strategy than going long in High PE ratio scenario.

The same can be depicted from studying the Nifty PE vs Nifty chart above. When Nifty PE ratio is at its peak in the range of 25 to 30 , nifty is also at its peak and vice versa.

It's clear from the chart above that stock market witnesses a sharp sell off when nifty pe is near 25 and witnesses heavy buying when nifty pe ratio is round 12 to Investors should not judge nifty index or sensex by its value. Nifty at and Sensex at are merely numbers and one needs to take EPS of all the constituent stocks into consideration before making an investment decision. Whether the index is chep or pricey should be judged on the basis of its PE ratio rather than the value. Based on historical data and pure common sense, investors can safeguard their investment portfolio and earn handsome profit by following the investment rationale suggested in following table.

As with Nifty PE ratio, investors can also investigate Nifty PB ratio to gauge if the market is undervalued or overvalued. This means that on average, the Nifty 50 companies are valued as much as three times than what is actually present in their books. So as the Nifty PB ratio goes up, the valuation gets expensive and vice versa.

One can compare Nifty PE ratio chart and Nifty PB ratio chart values to get a fair idea about market valuation leading to buying and selling decisions. The nifty dividend yield is basically the consolidated dividend yield of all the Nifty 50 companies. One of the ways companies distribute their profit to shareholders is by giving cash dividends and dividend yield is the ratio of dividend amount to price of the share.

Nifty dividend yield normally hovers between 1 and 2. Historically, a higher dividend yield above 2 means the market is undervalued and investors should go long.

On the other hand a lower dividend yield around 1 means the market is overvalued and investors should preferably book profit and stay out of the market till the euphoria cools down. It was around 3 during signifying the grossly undervalued nature of the stock market at that point of time. Investors can analyse Nifty PE, Nifty PB and Nifty Dividend Yield values to gauge the overall valuation of market and level of euphoria.

If all the three are pointing towards the same conclusion Overvaluation or Undervaluation , investors can be fairly sure about their investment decisions, i. Please use the Nifty PE chart, Nifty PB chart and the Nifty Dividend Yield chart available on this page to do your analysis. You can reach us at queries equityfriend. Investing involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress.

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