A Study on Evaluating P/E and its Relationship with the Return for NIFTY

Abstract

Retail Investors have always been in doldrums in deciding about the timing of entry and exit in market. These investors at large are driven by emotions in investing and are swayed by sentiments prevailing in market and thus at times entering into market when valuations are on higher side which is a time of euphoria and exiting the market when valuations are low and there is feeling of despondency. To understand this dilemma PE metric is one such valuation ratio. The paper explores the PE of NIFTY as an opportunity to invest and to identify and predict the expected return which can be earned based upon historical data. The paper also explores whether there is any difference in expected return if investment is made at different PE level of NIFTY.