BSE Sensex rising above 69,653 on Wednesday—is valid. Foreign institutional investors are back in action as buyers; their dithering in 2022 after yield gaps with safe US debt got squeezed now seems like old hat. An enlarged base of retail investors has held indices up, even as India’s economy has recovered from its covid contraction robustly enough to keep up a relatively pacy trajectory.
After output lost to the pandemic was plugged in 2021-22, official GDP growth was placed at 7.2% in 2022-23, a rate that was beaten in the first half of 2023-24. This not only contrasts with India’s dismal pre-pandemic slowdown, corporate profits have upped their share in the overall income pie as well. And if Sunday’s state-election results boosted expectations of domestic policy stability under a Narendra Modi administration beyond 2024, signs have also grown steadily of US-led global geopolitics working in India’s favour.
As bursts of exuberance can lead to asset inflation on stock exchanges, typically fed by a central bank’s easy-money policy to tide over a crisis, whether stock prices have gone too high is a question that attends every market rally. With shares afloat on the ebb and flow of demand and supply, prices can go up and down in a wide range. It is for would-be buyers to judge what they think the apt price for any share is.
For easy comparison, it helps to standardize the quoted figures. Since the basic point of buying a slice of a company is to get a sliver of what its business earns, a good way to size up a share on value-for-money is to look at what must be paid for every rupee earned by that share. This is captured by the share’s price-earnings (PE) ratio.
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