On 18 December, the price to earnings (PE) ratio of the Nifty 50 stock market index reached an all-time high of 37.84. This was around 87% higher than the average PE ratio of 20.26 since 1 January 1999.
The PE ratios of the Nifty 50 and other broader indices continue to remain at extremely high levels. This ratio is essentially the number of rupees that investors are ready to pay for every rupee of earnings over the last 12 months of the stocks that make up any index.
The average yearly PE ratio of the Nifty 50 has been largely rising since 2013. This basically means that share prices have risen much faster than company earnings. This is true for other indices as well. Interestingly, the overall net profit of listed companies in India hasn’t grown in many years. Their overall net profit in 2019-20 was lower than in 2007-08. Of course, 2019-20 profits would have been slightly hit by the covid pandemic, but even the overall net profit for 2018-19 was lower than that in 2010-11.