Share market basics
Price-to-earnings ratio: the share price divided by earnings per share, showing how many rupees investors pay for each rupee of annual profit.
The PE ratio compares a company's share price with its earnings per share. If SBI trades at ₹800 and earned ₹80 per share over the last year, its PE is 10; investors pay ten rupees for every rupee of annual profit. A higher PE usually means the market expects faster growth, or that the stock is expensive; a lower PE can mean a bargain or a business in trouble. PE only makes sense compared with the company's own history, its industry and the broad market. Banks and PSUs have traditionally traded at low PEs, while consumer and IT companies trade at high ones. Nifty itself has a PE, published by NSE, which investors use to judge whether the whole market is pricey. A PE based on loss-making earnings is meaningless, and trailing PE uses past profit while forward PE uses estimates.
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