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Stock Evaluation Using Pe Ratio

Of Nifty

2. Companies borrowing at artificially low-interest rates
boost their net profits; this is unsustainable as rising
rates will make the real “PE” very expensive.
CA Shivani Chaturvedi 3. Improperly capitalizing expenses & understating
expenses.

What is the bottom line? Apart from the PE ratio, the
If you’re a stock market enthusiast, then you should following metrics are a must-check together with the
know this: “PE Ratio of Nifty” PE ratio is one of the knowledge of the company’s business, future plans,
key metrics to ensure that the valuation of stock is promoter groups, and comparison with peers:
correct (Overvalued/undervalued). The Nifty P/E ratio
is calculated by the average P/E ratio of the Nifty 50 -Focus on recurring and sustainable Free cash flow
companies and it works the same as the P/E ratio of (Growth)
individual stocks. From the Nifty PE ratio historical -Check nifty price to book value ratio as book value is
data charts you can analyze the years 2000,2008 and less sensitive to window dressing.
2020’s crash & you can also track many bull markets’
periods from the 20+ years valuation charts. At -Check price/earnings-to-growth (PEG) ratio which
overvalued levels, smart investors start booking profits is a modified version of the P/E ratio that additionally
while at undervalued levels smart investors start the considers earnings growth.
accumulation process. -Check Debt-to-Equity ratio which is a stock measure
that shows how a firm finances its assets.
What is a good PE ratio in India for NIFTY? The Nifty PE
Ratio has traded in a PE range of 10 to 30 historically. -Check Beta which is a measurement of how reactive a
As per reports, PEs below 20 may provide good stock is, compared to the overall market.
investment opportunities; the lower the PE below 20,
the more attractive the investment potential! -Check Return on equity which tells you how efficiently
a company is using its shareholders’ equity to generate
Currently, Nifty PE Ratio is 19.69 But do you think, just a profit.
the PE ratio should be looked at in investing? While the “The method to pick a company to invest in today’s world
PE ratio should be looked at in investing, but there are isn’t really P/E ratio, dividend yield, etc. — it’s growth!”
a few possible downsides, such as:
My learnings so far had been Invest responsibly and
1. It doesn’t take into consideration a company’s debt or only put in what you are willing to lose. Happy Investing!
financial structure.

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