InvestorQ : Is the study of index P/E (Nifty or Sensex) useful?
Anjana Aiyar made post

Is the study of index P/E (Nifty or Sensex) useful?

Answer
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Mahima Roy answered.
2 years ago


The chart below captures the P/E ratio of the Nifty Index over a period of 1 year…
How is P/E of the index calculated? The index Market capitalization is divided by the aggregate profits of all the Nifty companies. Over the last one year, the Nifty P/E has been in the range of 25 to 27 with an upward trend. Historically, the Nifty P/E is very useful for judging whether the market is overpriced or underpriced from a trader and a portfolio management perspective. Normally, the Nifty has tended to bottom out after a sharp correction when the Nifty P/E reaches a level of 10-11. On the higher side, the Nifty has tended to top out around the P/E ratio of 28-30. Of course, there is no hard and fast sanctity to these levels and they are purely based on observation of past data.