Definition of P/E Ratio (Price-to-Earnings Ratio)
The P/E Ratio (Price-to-Earnings Ratio) is a valuation metric that measures how much investors are paying for each rupee of a company's earnings. It is calculated by dividing the current share price by the company's earnings per share (EPS).
Formula: P/E Ratio = Share Price ÷ Earnings Per Share (EPS)
A high P/E (e.g., 50–60x) suggests investors expect strong future growth but the stock may be expensive relative to current earnings. A low P/E (e.g., 10–15x) suggests the stock may be undervalued or in a slow-growth sector. The Nifty 50 typically trades between 18–25x P/E in 'fair value' territory. The P/E of the overall market (Nifty 50 P/E) is widely used to assess whether the market is overvalued or undervalued — many Balanced Advantage Funds use Nifty 50 P/E as a signal to shift between equity and debt.