How to read a stock's P/E and P/B ratio against the index, with NSE's own numbers

P/B, price to book. Book value is the company's net worth on its balance sheet: assets minus liabilities. If the same company has ₹250 of net worth per share, the P/B is 4. Book value moves slowly, so P/B is steadier than P/E, and it is the usual yardstick for banks and lenders, whose assets are mostly loans carried near their value.

The module on reading financial statements shows where both figures come from in a company's results, and the Nifty PE guide applies the same ratios to the whole index.

The spread is wide for reasons that have little to do with cheap or dear. Banks earn on borrowed money and their profits swing with the credit cycle, so markets pay less for each rupee of them. Consumer companies with steady demand and little debt command more. A retailer still opening stores at a fast clip is priced for profits years away. So the first comparison is within the sector: a bank at 10 times earnings against a bank index at 13, an IT company at 15 against an IT index at 17.69. Comparing a bank's P/E with an FMCG company's says almost nothing.

The second comparison is with the stock's own past, on the same earnings basis. A company that has traded between 20 and 30 times earnings for a decade and now trades at 15 has either become cheaper or become a worse business; finding out which is the work.

Each row tells a different story. TCS became cheaper on this measure because investors paid less for nearly the same profit. Tata Steel's P/E of 53 a year earlier was high because its profits were near a cyclical low, not because the share was expensive; as profits recovered the P/E collapsed at an unchanged price. That is the classic trap with cyclical companies, steel, metals, sugar, commodities: they look most expensive on P/E near the bottom of their cycle and cheapest near the top. Titan's price rose a quarter, yet its P/E fell, because earnings rose faster. Hindustan Unilever's earnings per share rose 37.5% in NSE's figures: a jump that size in a mature consumer company is worth checking in the results for a one time item before treating the lower P/E as lasting.

The note EPS grew, cash did not and the module on revenue and earnings quality cover the other checks on the "E": whether the profit is turning into cash, and whether it came from the business or from a one off.

There is a simple identity between the two ratios. Price ÷ book divided by price ÷ earnings is earnings ÷ book, which is the return on equity (ROE). It explains most of the gaps in P/B across sectors:

The IT index trades at nearly five times book with a P/E below the Nifty's because its companies earn about 28% on their equity with little capital. The Smallcap 250 trades at a higher P/E than the Nifty 50 while earning less on its equity, which is what investors paying for future growth look like in the numbers. The note DuPont: same ROE, three different businesses breaks ROE down further.

• Use the right earnings. Trailing twelve months, and consolidated for groups with large subsidiaries. NSE moved its index P/E to consolidated earnings in March 2021, which cut the Nifty's P/E overnight; the same choice can change a single company's figure.
• Look for one time items. A sale of a business, a tax write back or an impairment can halve or double a year's earnings. Strip them out before comparing.
• Compare within the sector, then with the stock's own range over several years.
• For cyclicals, look through the cycle. Average earnings over five to ten years, or use P/B, instead of a single year's P/E.
• For banks and lenders, start with P/B and the quality of the loan book; then check ROE.
• Remember what a ratio cannot tell you. Valuation says how much growth the price assumes, not whether it will come. The value factor module shows how cheapness has paid as a systematic rule across many stocks, which is different from judging one.

RupeeCase rules do not pick stocks by eye. They score a defined universe on a published rule and hold the top names, so a single P/E judgement never decides a holding; the stock picking guide explains the approach. Midcap applies a momentum rule to mid sized companies, 20 holdings rebalanced every 2 weeks: model CAGR 38.75%, deepest fall −24.87%, as of 27 Apr 2026.