How are markets valued today - Nifty PE and PB

The Nifty is above 8100 and the Sensex above 27100. Stock market indices are at all time highs.

So, where are we in terms of valuations when compared to previous highs. Two important ratios used to evaluate a share are the PE Ratio - (Price-earning ratio) and the P/B Ratio (price-to-book ratio). When evaluating the market, we take the PE and PB of an entire index to see its valuation and I have taken the PE and PB of the Nifty form 1.9.2006 and plotted on the below graph.

This chart shows the PE and PB of the Nifty from 1.9.06. We are far away from the high valuations of Jan 2008 and Oct. 2010. The Nifty PE was 28.29 on 8.1.2008 and 25.72 on 6.10.2010. The price to book was at a high of 6.55 on  8.1.2008 and 3.97 on 2.11.2010.

Today, we are at a PE of 21.22 and PB of 3.52 for the Nifty.

Source: http://www.nseindia.com/

Nifty PE and PB

Well we still have some way to go before valuations become expensive. One thing to note - as the economy revives and profits grows,  predictions of various brokerages may still turn out correct! 

SIP being the best way to invest for the long term,  here's an earlier post on how to invest using SIP properly!

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