Name

INDIAN STOCK MARKET P/E RATIOS

Authors

Dr. L. C. Gupta, P.K. Jain, C.P. Gupta

Year

1998

CONTENTS
1.

OBJECT AND SCOPE

Specific objectives of study

Definition
The Indian situation
Coverage of study
Layout of study

INDIAN MARKETS P/E RATIO: A HISTORICAL

PERSPECTIVE

Introduction
Method of analysis
The markets P/E ratio
Market segments
Actively traded group defined
Data required about each company
Why yearly P/E ratio?
Market P/E ratio: how computed
Market P/E ratio on combined basis
Exclusion of loss-making companies
Market P/E ratio as median value
Quartiles
Results of analysis
Actively traded group
Entire group
Observed long-term changes
Factors underlying long-term change
Indian markets upwards revaluation
Demand-side change
Position before the 1980s
Shares popularised by FERA issues
Attitudinal shift towards equities
Allowing entry to overseas investors
Supportive policy environment
Concluding comments
International perspective

BEHAVIOUR OF INDIAN MARKETS

P/E RATIO: FOCUS ON 1990S

Object of analysis
Short-term movements of market P/E ratio
Method of analysis
Quarterly analysis
BSE P/E ratios
Results of analysis
Period of bubbles
First bubble of 1990s
Bubbles become bigger
The market turns full circle
Market P/E ratio falls to 10-year low
Governments response
Concluding comments
Investors problems unresolved
Role of speculation
Abnormal P/E ratio and bubbles

USING MARKET P/E RATIO AS MARKET SIGNAL

Understanding the market P/E ratio

Fund managers ineptness
Best indicator of markets state
Looking at individual company
P/E ratios not enough
Company P/E ratio has no norm
The norm for market P/E ratio
Using market P/E ratio as signal
Suggested bench-marks for P/E ratio
Four states of the market
Actual bench-marks suggested
Investors viewpoint
Market bubbles
No bench-marks for company
P/E ratio
Considerations in fixing bench-marks

EVALUATING INDIVIDUAL COMPANY

P/E RATIO: A NEW APPROACH

Components of over-all return

Effect of purchase price on return
Interpreting the P/E ratio: a caution
Concept of justifiable P/E ratio
Varying assumptions
How to compute justifiable P/E ratio
Illustration

P/E RATIO AND COMPANY SIZE

Segment-wise P/E ratio and investment strategy

Applications of size analysis
Measures of company size
Results of analysis
Company size and P/E ratio
Market capitalization size criterion superior
How company size has changed
Concluding comments
Influence of market arrangements
Small companies ignored
Arrangements for small company shares

EARNINGS YIELD, DIVIDEND YIELD AND

DIVIDEND PAYOUT RATIO

Object of analysis
Study of inter-relationships
Result of analysis
Earnings yield
Dividend yield
Payout ratio
Effect of company-size
Concluding comments
Emphasis shifts from dividend yield to capital
appreciation

WITHIN-YEAR SHARE PRICE FLUCTUATIONS IN INDIA:

MAGNITUDE AND IMPLICATIONS

Object of analysis
Results of analysis
Indian market too volatile
Our method vs. the one-day returns
method of measuring volatility
Price fluctuation and company size
A great fallacy
Concluding comments
Risky money game
Reforms needed to strengthen the
influence of fundamental factors