PE Ratio Analysis
A PE ratio is the number of years of today's profit you are paying for. Paying too many years for an excellent business is the most common way careful investors lose money.
Figures checked · How we calculate
−27%Hindustan Unilever's share price, five years to September 2026
Between FY21 and FY25, Hindustan Unilever grew its profit 33%, from ₹7,999 crore to ₹10,671 crore. Over the five years to September 2026, its share price fell about 6% a year. ₹1 lakh invested five years ago is worth about ₹73,400 today, before dividends.
Nothing went wrong with the business. In 2021 the market was paying more than 70 times its earnings, and it stopped paying that much. The PE ratio is how you would have seen this coming.
A PE ratio is the number of years of profit you are paying for
TCS closed at ₹2,082 on 25 September 2026 and earned ₹136.01 a share in FY26. ₹2,082 ÷ ₹136.01 = 15.3. If profits stayed flat, it would take 15.3 years of earnings to pay back what you paid for the share.
Turn it upside down and you get the earnings yield: 1 ÷ 15.3 = 6.5%. That is the profit each rupee of your money earns this year, and you can compare it directly with a fixed deposit. A PE of 40 is an earnings yield of 2.5%. You accept that only if you expect the profit to grow a lot.
The same company can be a good or a bad investment depending on the price
- Bought at PE 20, sold at PE 20₹3.1 LEarnings roughly triple over ten years, and so does your money: 12% a year.
- Bought at PE 60, sold at PE 30₹1.6 LIdentical earnings growth. The multiple halving takes half of it back: 4.5% a year.
- What the higher entry price cost₹1.6 LOn ₹1 lakh, for owning the same business over the same ten years.
Earnings grow 12% a year for 10 years in both cases. The only difference is the PE you buy at and the PE you sell at. Dividends are ignored.
See 12% a year for ten years in the compound interest calculator →
The business did identical work in both rows. The investor in the second row earned 4.5% a year, less than a fixed deposit, because half of ten years of profit growth went into the multiple shrinking back to normal.
A low PE is not the same thing as cheap
Before you call a low-PE stock cheap, write down in one sentence why the market might be right to price it that way. If you can't, you haven't found the reason yet.
One-off gains make a PE look cheaper than it is
Hindustan Unilever's reported EPS rose from ₹45.32 in FY25 to ₹64.01 in FY26, a 41% jump. Most of it did not come from selling more soap. "Other income" rose from ₹1,355 crore to ₹4,923 crore, while operating profit grew 2%.
At ₹1,943, the share trades at 30.5 times the FY26 figure and 42.9 times FY25's. Same share, same day. Whichever EPS a website picks decides which of those PEs you see.
Always check the profit-and-loss statement for "other income" and "exceptional items" before trusting a PE. If the jump in profit did not come from operating profit, divide by an EPS that leaves it out.
Compare a PE with the same company's history and its peers, never across industries
Snapshot on 25 September 2026, price from Screener.in, EPS on trailing 12 months unless noted:
| Company | Price | EPS | PE | Profit growth, FY25 to FY26 |
|---|---|---|---|---|
| Coal India | ₹426 | ₹50.63 | 8.4 | −12% |
| HDFC Bank | ₹736 | ₹51.35 | 14.3 | +8% |
| TCS | ₹2,082 | ₹136.01 (FY26) | 15.3 | +1% |
| Reliance | ₹1,226 | ₹59.69 (FY26) | 20.5 | +18% |
| Maruti Suzuki | ₹12,065 | ₹466.90 (FY26) | 25.8 | +1% |
| Hindustan Unilever | ₹1,943 | ₹63.66 | 30.5 | +41%, mostly one-off income |
A steel company at PE 15 may be expensive; a consumer brand at PE 15 may be a rare bargain. A PE only means something next to the same company's own ten-year range and the PE of its direct competitors.
The Nifty has a PE too, and it is below its 10-year average right now
Add up the market value of all fifty Nifty companies, divide by their combined earnings, and you get one PE for the Indian large-cap market. NSE publishes it daily. In late September 2026 it was about 19.5–19.8, against a 10-year average of roughly 23.3.
Four things move the index PE:
- Earnings growth. When profits grow faster than prices, the PE falls even as the market rises.
- Interest rates. When a fixed deposit pays 8%, shares have to compete harder and multiples fall. When it pays 5%, they rise.
- SIP flows. Steady monthly buying from domestic investors supports prices in a way it did not a decade ago.
- Index changes. Swapping a low-PE public-sector company for a high-PE private lender raises the index PE without a single share price moving.
Nobody can use the index PE to time the market. It stayed "expensive" for years at a stretch while the market kept compounding. It is good for one thing: setting expectations. Buying at a high index PE means more of your future return has to come from profit growth, so expect less. Don't stop your SIP because of it.
When the PE ratio does not work
- Loss-making companies. Negative EPS gives a meaningless PE. Use price to sales, or wait until there are profits.
- Cyclicals at the peak. Steel, cement and commodity companies show their lowest PE when profits are at a cyclical high, which is often the worst time to buy.
- Banks and lenders. A bank can report healthy profits while its bad loans pile up. Read the PE alongside price-to-book and the gross NPA ratio.
- Heavy debt. Two companies with the same PE are not the same price if one carries ₹40,000 crore of borrowings. The balance sheet guide shows where to find it.