i'll explain what he means in layman terms. Today if you put Rs 10 in bank, you would get Re 1 every year, compared to putting Rs 12 a few years ago. Compare that to the markets where people are putting upto Rs 23, which if the earnings are constant they would get Re 1 only every year. But surely people are expecting earnings to rise drastically (as has been demonstrated over the last few years), that they are willing to put upto 23 times earnings in the stock market.
Now, even if the interest rates were to go higher, so that say, you would Re 1 every year with only Rs 8 investment, still paradoxically, the shares are not becoming cheaper (which they should because of demand). That is people are willing to invest at and above Rs 23 although they may get only Re 1 every year, if the earnings are a constant. But because people are expecting more and more higher earnings, and if they invest Rs 23 in the stock market, they would get more than Re 1 in the years to come (and actually increase exponentially), they are willing to value the stock market at higher and higher prices, even though the interest rates are going up.
Now the real question, is the market really over-heated or is this just a sign of an emerging market
RE:Was it latin or greek
by neeraj jain on Feb 14, 2007 03:12 AM
every thing is simple, if your 10 Rs is fetching 1 Rs per month income Vs your 23 Rs are fetching 1 Rs per month income.
where youo will keep your money. if intrest rate are going up and you are getting better returns share market should fall down, but its not happening, actually we are on the verge of this, when people will sell their shares and put it back in bank as they used to do 10years ago.
RE:Can you explain me what is P/E ration and how do u calculate this Ration
by Rajesh S on Feb 13, 2007 11:43 PM
To know about P/E, it would be better to know about EPS first.
EPS (Earnings Per Share) - It is the Net Profit divided by total number of shares. If a company has 10,000 shares in total, and the company makes Rs.500,000 in profit (in a year), the EPS for that financial year is Rs.50.
P/E Ratio: You must take the stock price and divide it by the EPS, to get the P/E ratio. For instance the current market price of ABC company share is Rs.100 and its EPS is 50. Then the P/E ratio would be 2.
The P/E ratio (also called the "Earnings Multiple") needs to be compared in the same sector that a company is in. P/E of a sector is usually at similar levels - for instance, tech companies have P/E of around 35 - 45, PSU banks 5-10, Private banks 22-25 and so on.
RE:Can you explain me what is P/E ration and how do u calculate this Ration
by Rajesh S on Feb 14, 2007 12:06 AM
Logic would argue that a stock trading at a lower P/E than its peers could be mispriced and therefore a potential good buy.
But, there is also a view that high P/E means - the investors think that the firm has good growth opportunities, its earnings are relatively safe and it deserves only a low capitalisation rate, or both.
So even though evidence suggests that low-P/E stocks do tend to outperform their high-P/E counterparts in the short run, it is not enough to simply pick stocks with the lowest P/E ratio.
You would also need to look at the company's risk level and growth potential, along with the quality of its earnings before arriving at an investment decision.
RE:Can you explain me what is P/E ration and how do u calculate this Ration
by Rajesh S on Feb 14, 2007 01:08 AM
You can also check this post in ICHP Forum. Could be useful.
RE:Can you explain me what is P/E ration and how do u calculate this Ration
by prabir palchaudhuri on Feb 13, 2007 10:04 PM
P is Market Price of the share E IS EARNINGS PER SHARE i.e Net profit after tax divided by no of equity shares
RE:RE:Can you explain me what is P/E ration and how do u calculate this Ration
by prabir palchaudhuri on Feb 13, 2007 10:36 PM
as P=Market price which is the present price of the scrip at the bourses goes higher you would find that the PE RISES as the EPS for the year remains the same.Hi high PE Multiple signify that that the Market Price is high as EPS for the share remain same for the year.Also to be noted is PE Multiple of BIG CAP companies shares are generally quoted at low PE Multiple than the Small /Mid Cap companies as the Market price of smaller companies are generally much higher than the EPS of those compnaies.
It looks that understanding stocks is a diificult task as shown by the article as it has confused more and opened so many issues yet to know and then infer about stocks. can u provide some shortcuts to understand stocks in short period.
After reading this I guess those who even know PE would seriously think do they really know ? This would be the worst explaination I have ever come across.
