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Price-to-Earnings Ratio and Hockey-Stick Effect

  • 03 Apr 2024
  • 1 min read

Source: TH

The Chairperson of SEBI noted that despite a high P/E ratio, overseas investors are attracted to the Indian capital markets due to the rapid economic growth, reflecting global optimism and trust in India, exemplified by the hockey stick effect.

  • Price-to-Earnings (P/E) Ratio:
    • The P/E ratio is the company's share price relative to its earnings per share (EPS).
    • The P/E ratio helps assess a company's stock value compared to others and is also useful for comparing its valuation historically, against peers, or the market.
    • A high P/E ratio may indicate overvaluation, while a low ratio could suggest undervaluation.
  • Hockey Stick Effect:
    • The hockey stick effect is characterised by a sharp rise or fall of data points after a long flat period.
    • Hockey stick charts visually depict notable changes or rapid growth, seen in areas like corporate earnings, global temperatures, and poverty statistics, with applications in business, economics, and policy.
      • It indicates the need for urgent action due to a drastic shift in data points.

Read more: SEBI

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