Let's discuss P/E

The biggest criteria for selection of a stock for Ben Graham was P/E. Most of the people talk about a stock or index trading at a P/E ratio of X or Y. But Ben Graham never considered one year's results very important. He always liked to take averages. So I took five year averages of Nifty EPS and calculated Nifty P/E for average of five years earnings. Since the Nifty P/E data is available only from 1st January 1999, I could only start my average EPS from 1st January 2004. We had seven significant corrections between January 2004 and today. The P/E ratios of Nifty at the peak and at the bottom of this corrections were as below:

Top Start	Top Nifty P/E	Bottom End	Bottom Nifty P/E
9 Jan 2004	28	17 May 2004	19.32
8 March 2005	26.46	29 April 2005	22.6
4 Oct 2005	28.91	28 Oct 2005	24.78
10 May 2006	36.17	14 June 2006	24.85
7 Feb 2007	35.04	5 Mar 2007	29.17
8 Jan 2008	42.51	27 Oct 2008	14.68
10 Nov 2008	18.2	9 Mar 2009	14.21

The Nifty P/E of last five years' average EPS had rallied to 19.01 till 15th April but has come down to 18.93 as of 25th April. The 14.21 P/E of Nifty's average EPS of last five years is the lowest among the last five years. The investors really remained very enthusiastic between 2004 and 2008. At the peak of 8 Jan 2008, the ratio of last year's EPS and average of five year's EPS was about 1.53, high compared to 1.15 today. The P/E fell below 20 only after 15th October when Nifty went below 3500 and is below 20 over the last six and a half months. It seems good investment opportunities were searching for investors in the last six and a half months. Where were you?