Sensex PE Ratio

The price to earnings ratio, commonly known as the PE ratio is a way to value a company by comparing the price of its stocks to its revenue/earnings. This ratio basically tells you how much you are paying for each rupee of earnings (of the company). The Sensex PE ratio is, therefore, is the collective ratio of price per share to the earnings (of the 30 companies in Sensex) per share.

The PE ratio formula is:

PE = Price Per Share ÷ Earnings Per Share

A low or high PE ratio is not an indicator of good or bad. Rather, they can mean a bunch of things.

If the PE ratio is low, it could mean that the investors are losing confidence and are selling the shares which in-turn tends to lower its price. The earnings, however, holds steady.

A low PE ratio could also mean that the company’s earnings are growing so quickly that the investors do not notice immediately. They would, therefore, start buying shares thereby driving its price up.

Know About: Nifty and Sensex are market indexes and are called as economic barometers! 

Similarly, a high PE ratio could result in investor excitement thereby driving the share price up. The earnings in this scenario remain low. 

In some cases, a high PE ratio also justifies/portrays that a particular company is prepared to grow in the near future. 

Whatever be the scenario, you must research the companies well before investing. Compare its PE to other companies registered with the stock exchange to analyze any inconsistency. 

In this article, we shall discuss why the Sensex Price to Earnings Ratio is important, how it (PE) is calculated for a single stock, how is the Sensex PE calculated.

We shall also cover areas such as the average Sensex PE in the past (through long term charts) and the common mistakes traders make while finding the current Sensex PE ratio.

BSE PE Ratio

The Bombay Stock Exchange abbreviated as BSE provides the PE ratio daily. As per the latest/ recent reports of in April 2020, the Sensex closed at 33,717.620 points.

The Sensex PE ratio is the most fundamental analysis of stock and a major aspect monitored by investors (while investing in equity). This ratio portrays the valuation of the market in terms of – overvalued, undervalued, and/or rightly valued. 

Sensex PE Ratio Today

You can have the PE value on a daily basis that helps you in analyzing the company’s status before making an investment.

Considering the current ratio value of May 2020, India’s Sensex recorded a daily PE ratio of 19.770. Besides, India’s Sensex PE ratio is updated daily on its official website. For the ones who wish to monitor it (India’s Sensex PE ratio) for the past years, the same is available from Dec 1988 to May 2020. 

The highest recorded Sensex PE ratio (all-time high) was 57.420 in April 1992 while the lowest to date was 9.830 in November 1998. 

---

How To Calculate Sensex PE Ratio

Understanding and calculating the total value of the share market first requires understanding the PE of Sensex. 

For a clear idea, here’s how to calculate the PE for a single stock:

As already mentioned, PE = Price (The Market Price Per Share ) ÷ Earning (The Earning Per Share)

Now, let’s assume that the current market price of ABC is ₹3000.

To calculate ABC’s earning per share, we need to divide the “total net profit” (of past 12 months) of the firm by the numbers of shares it currently possesses.

Further, the market price needs to be divided by the EPS (Earning Per Share) to find ABC’s current PE ratio. 

In simple words, the PE ratio denotes the price that the investors are ready to pay for earning ₹1 every year.

In the above-mentioned example, let’s assume that the people are ready to pay ₹27 to earn ₹1 every year.

Assume that the price of a stock is ₹20 and its EPS is ₹2. The PE, therefore, is 10. This value (the price-earnings ratio) shows that the investor willing to pay ₹20 for earning ₹2.

You can obtain the current market price of the stocks from the respective stock exchange where that particular stock is listed.

Also, the Earnings Per Share (EPS) can be of 2 types:

1. Trailing EPS which calculates the “trailing PE multiple”. It is the actual reported earnings of a company per share for the preceding financial year (for 12 months trailing). 
2. Forward EPS which, as the name suggests, calculates the PE in “forward multiple”. It is sort of a forecasted earning of a company per share for the immediate next financial year (for 12 months forward).

Also Learn: Sensex Calculation

---

Sensex PE Ratio Chart

Now that we have discussed what the PE ratio is and how to calculate it (PE ratio), let’s discuss what the Sensex PE ratio chart signifies.

As we had mentioned earlier, the Sensex PE is updated regularly and you can monitor the past PE ratios as well (starting from 1998).

The Sensex PE ratio chart can be day-wise as well as year-wise. If you wish to analyze the Sensex PE ratio for each day of a particular month, relevant charts are available across various websites.

Similarly, for a year-wise analysis, use the yearly Sensex PE ratio chart. 

The following table highlights the Sensex PE ratio (along with respective highs and lows) for the past 20 years (starting from 1998):

 

---

Conclusion

Sensex shows and updates the price movement of the 30 companies included in it like- RIL, Infosys, TCS, Maruti, etc. The often-quoted phrases like “Sensex is at 20000” or “Sensex is at 21000” denotes the price of Sensex. 

We know that for companies, its actual owners are its shareholders. Its EPS is calculated by dividing the company’s total net profit by the number of shares it currently has. 

The total price is then divided by the combined EPS of Sensex (consisting of 30 companies) to calculate the Sensex PE ratio.

We hope that this helped and you are now aware of the term, its usage, and significance. 

Happy investing.

---

In case you are looking to get started with share market trading or want to open a Demat or trading account – just fill in some basic details in the form below.

A callback will be arranged for you:

 

More on Share Market Education:

If you wish to learn more about the stock market in general, here are a few references for you: