P/E Ratio (Price-to-Earnings)

It tells you how much you are paying for ₹1 of profit.

A P/E of 30 means you are paying ₹30 for every ₹1 the company earns.

High P/E suggests high growth expectations. Low P/E suggests undervaluation or business problems.

The Nifty 50 index itself has a P/E ratio, which tells you how expensive the overall Indian market is. Historically, the Nifty P/E has ranged between 15 and 30. When Nifty P/E crosses 25, the market is generally considered expensive. When it falls below 18, it is often a good time to invest more aggressively.

Always compare P/E ratios within the same sector. An IT company like Infosys trading at a P/E of 25 is normal because the sector commands premium valuations. But a PSU bank like Bank of Baroda at a P/E of 25 would be considered very expensive because PSU banks historically trade at P/E ratios of 5-10.

P/E ratio has limitations. It does not work well for companies with no earnings (loss-making startups like Zomato in its early listed days) or for cyclical businesses where earnings spike temporarily. In such cases, Indian analysts use other metrics like Price-to-Sales, Price-to-Book, or EV/EBITDA.

For long-term Indian investors, tracking 'trailing P/E' (based on last 12 months earnings) and 'forward P/E' (based on estimated future earnings) is important. A stock might look expensive on trailing P/E but cheap on forward P/E if analysts expect strong earnings growth. You can find both these numbers on screeners and on broker platforms like Zerodha's Kite or Groww.