Prajna Capital - An Investment Guide

Earning ( P/E ) is one of the most widely term used in the share market. Every investor now a day supposed to know the term P/E. If the term is so important then what exactly it mean? The meaning of the term is in its name itself. It is ratio of Price to its Earning. In other words, it is the equilibrium of what market expects and how company has performed? Confused? What is price of the stock? How the price of the stock is determined? 1) Stock Price: It is just the demand-supply concept. Price of any stock is determined on the basis of demand of that script and its supply in the market so in short it can be considered as the expectations of the investor from the script. 2) Earnings : Earnings mean earnings after depreciation and tax. In calculating P/E, earnings are considered per share to bring uniformity in calculation. So EPS is the actual performance of the company, which is calculated as follows- EPS = Profit after Tax( Profit for Shareholders) Number of shares outstanding. Sin...

Take A Leaf Out Of Historical Happenings, There Are Returns To Be Made THE long-term trend is pointing towards under valuation of the Indian equity market. The market, as measured by Price-to-earning ratio ( PE ) of the Sensex has just about pierced the long-term trend line. At the current valuation, it is quoting at a one-year forward of 16, little less than the earnings growth rate that Sensex companies have managed since 1991. If the theory of market returns chasing earnings growth is to be believed, this is just about time for accumulation for those looking at the longer haul. Since 1991, while the Sensex has grown at CAGR of 15.5%, its earnings grew at a rapid 16.6% per annum. In the past two years, the market went up partially on the back of ‘ PE expansion’ . It meant PE of the Sensex was getting priced higher than usual, since the market expected faster growth in earnings. But with the current correction, while valuations have been ‘cleansed’ of such expectations, there are pro...