Retail screening platforms lean heavily on three ratios: the price-to-earnings (P/E) multiple, the price/earnings-to-growth (PEG) multiple, and the price-to-book (P/B) multiple. They are convenient shortcuts for a hard question: what a business is actually worth. Treating them as universal truths is a reliable way to lose money, because every multiple breaks down when it is applied to the wrong industry or the wrong point in a cycle.
In this blog, we'll look at what each ratio measures, where each one can mislead Indian investors, and how to read them against the sector levels published by the exchange.
The Standalone versus Consolidated Reporting Nuance
The most common trap in Indian equity analysis is the reporting basis. Standalone results reflect only the parent legal entity, while consolidated statements bring in the profits and losses of all subsidiaries. Because consolidated financials include the results of subsidiaries, P/E calculated using consolidated earnings can differ materially from a standalone P/E.
This is not a theoretical distinction. NSE calculates its published index P/E from each constituent's trailing four quarters of consolidated earnings, falling back to standalone financials where consolidated earnings are not available, and applies the same logic to P/B, using consolidated net worth.
So before you compare two companies or one company against its own history, confirm the basis your screener uses. A long series that mixes the two is not a like-for-like comparison.
Definitions and Indian-Reporting Nuances
PE Ratio
#Formula: P/E = Market Price per Share ÷ Earnings per Share.
Two variants exist:
- #Trailing twelve months (TTM) P/E: Uses the last four quarters of reported EPS, so it is audited but reflects a cycle that may already be turning.
- #Forward P/E: Uses projected EPS for the next four quarters, which is closer to what you are actually buying. However, it depends entirely on how accurate the analyst forecast turns out to be.
PEG Ratio
#Formula: PEG = P/E ÷ Expected EPS Growth Rate (%).
Popularised by Peter Lynch, the PEG ratio adjusts the P/E for growth. A PEG of 1.0 is commonly read as fair, below 1 as potentially undervalued, and above 1 as expensive.
The problem is that the growth input is not standardised. It can be:
- Trailing growth
- Forward consensus
- A multi-year CAGR from a broker model
- The company's own guidance
The ratio shifts materially depending on which one your screener picked.
Treat a PEG near 1 as a rough heuristic, since it was formulated in a US context and does not account for earnings quality or the volatility of Indian earnings.
PB Ratio
#Formula: P/B = Market Price per Share ÷ Book Value per Share.
#Book Value = Total Assets - Total Liabilities
A P/B ratio below 1 means the market values the company at less than its net assets. That has historically been read as a value signal, although it often reflects genuine asset impairment rather than a bargain.
Two factors can distort the ratio:
- #Goodwill: When a company acquires a business above net-asset value, goodwill sits on the balance sheet, and if it is later written down, book value collapses and P/B spikes.
- #Large share buybacks: Share buybacks can reduce shareholders’ equity and, in turn, affect the P/B ratio, even when the underlying operating business has not materially changed.
Failure Modes of Earnings and Growth Metrics
The P/E ratio assumes current earnings reflect the normalised cash generation of the business. For a large part of the Indian market, that assumption does not hold.
The Cyclical Industry Peak Trap
Applying a trailing P/E filter to cyclical sectors such as steel, metals, and cement is a common error. At the peak of a commodity cycle, the share price already anticipates the coming downturn. At the same time, reported earnings still reflect peak profitability, so the multiple compresses into low single digits and the stock screens as cheap. At the trough, the opposite happens: earnings approach zero, the multiple expands sharply, and the stock screens as expensive precisely when the cycle is about to turn up again.
The Earnings Distortion from One-Off Items
Reported profits are often inflated or depressed by one-time events, such as a tax write-back, an asset sale, or an exceptional provision. A single large one-off gain can make a trailing P/E look unusually low for four quarters and then reverse. Normalise for exceptional items before you act on a low P/E, and check whether the profit came from the business or from the accounting.
The Instability of Growth Metrics
PEG becomes uninterpretable when earnings growth is volatile or negative. If a cyclical company reports a sharp contraction in EPS, the growth denominator turns negative, and the ratio stops meaning anything.
Broker estimates in the Indian mid-cap space also diverge widely, and an over-optimistic forecast will mechanically produce a cheap-looking ratio.
Where Indian Sector Multiples Sit Today
The most useful habit you can build is reading a company's multiple against its own sector rather than the broad market. The table below uses NSE's published index figures, all on the same basis and the same date, so the comparison is like-for-like.
Source: NSE live market indices, as on 20 August 2026. Market valuations change continuously. The figures are provided for reference as of 20 August 2026
Read across the rows, and the point makes itself. FMCG trades at roughly 33 times earnings, while banks trade at under 14; neither number is a verdict. Consumer-staples companies often command higher multiples because of relatively predictable demand and profitability, while banking valuations are influenced by factors such as credit risk, asset quality and profitability.
The P/B column behaves the same way: Nifty IT sits above 5 times book and Nifty Metal below 3, because one group's assets are on the balance sheet and the other's are not.
The Book Value Distortion in Modern Sectors
P/B is the natural anchor for asset-heavy businesses, where the balance sheet genuinely captures what the company owns. It fails in two situations that matter here.
The Asset-Light Flaw
For IT services and consumer companies, the real value drivers are human capital, brand equity, and proprietary processes, none of which appear on the balance sheet. That is why Nifty IT trades at a P/B of 5.35×, compared with 2.92× for the Nifty 50.
Calling an IT services firm expensive on P/B is like calling a consulting practice overvalued because it owns no factory machinery. Here, earnings and cash flow tell you more than book value does.
Buybacks amplify the effect: Every rupee returned reduces the equity base, so the book value falls and the P/B ratio rises, even as nothing changes operationally.
#Low P/B in Banking
A low P/B ratio in banking does not automatically mean a stock is undervalued. A discount to book value may reflect concerns about asset quality, profitability or the bank's ability to generate returns above its cost of equity.
Before treating a low P/B as an opportunity, investors can examine asset quality, provision coverage and return on assets.
Conclusion
No single multiple values a business. Each one answers a narrow question and misleads outside its lane. P/E fails at cyclical peaks and on earnings distorted by one-off items, PEG breaks when growth is volatile or negative, and P/B misreads asset-light companies and discounted banks. Use them together, on a like-for-like reporting basis, and always against the right sector and the right point in the cycle rather than a fixed threshold. Read the ratio first, then ask why it is where it is. To run these screens on live data, you can open a Demat account with SMC.
Investments in securities markets are subject to market risks. Read all the related documents carefully before investing.
1800 11 0909
smc.care@smctradeonline.com