The P/E Ratio of Nifty

The P/E ratio compares price with earnings. It is the most used measure of whether the market looks cheap or expensive compared with its own past.

In short
  • P/E = price ÷ earnings per share; for an index, total market value ÷ total earnings.
  • Compare it with the index's own history, not with a fixed number.
  • High P/E says little about the next few months, more about the next several years.

What it means

A P/E of 20 means investors pay ₹20 for every ₹1 of yearly earnings. The flip side is the earnings yield: 1 ÷ 20 = 5%. A higher P/E means the market expects earnings to grow, or is simply paying more.

Reading it against history

Every index has its own normal range: banks trade at lower P/Es than consumer companies, and small caps differ from large caps. That is why the Market Valuation page ranks each index's P/E against its own history and shows the percentile, not a fixed cut-off.

A note on NSE's numbers

NSE switched its index P/E from standalone to consolidated earnings from April 2021, which made the series jump for some indices. This site starts the P/E history from April 2021 for the indices where the older numbers are not comparable.

Earnings growth from price and P/E

Earnings = price ÷ P/E, so tracking both shows whether a rally came from rising earnings or from investors paying a higher multiple. A rally driven only by a higher P/E is more fragile.

Common mistakes

  • Selling just because P/E is high. Markets can stay expensive for years.
  • Comparing the P/E of one sector with another's.
  • Using P/E on companies with tiny or negative earnings, where it becomes meaningless.

Common questions

What is a good P/E for Nifty?

There is no single right number. Compare today's P/E with Nifty's own history: the Market Valuation page shows where it sits as a percentile.

Does a high P/E mean the market will fall?

Not in the short term. Valuation has had a weak link with the next few months and a somewhat stronger link with returns over many years.

What is earnings yield?

Earnings yield = 1 ÷ P/E. A P/E of 25 gives an earnings yield of 4%.