Sensex has touched almost 20000, though this number is arrived out performance of 30 big companies listed on the exchange. Some of the stocks are quoted on a all time high basis but still investors want a pie in these India based equities. Fundamentally speaking there is growth there and any growth in earnings will take the stock price high with a favourable macro economic factors.

Economic Times reports

Stocks on Indian bourses may be commanding huge PE (price-to-earnings) multiples, but for brokers and investors they translate into an ‘extra price’ they pay for higher returns on investments.

A dipstick study, conducted to see how well-priced desi blue chips are vis-a-vis their peers in developed and emerging markets, reveal that Indian shares are far more expensive (in terms of PE multiples) than global majors with better revenues and adjusted profits.

To make a point, L&T with a trailing PE of 56 times is far more ‘expensive’ than engineering behemoth GE (18) or a Mistubishi (13). Likewise, ICICI commanding a PE of 41 times is far more expensive than Citigroup (9) and BNP Paribas (8). IT major Infosys with a trailing PE of 24 is undoubtedly valued higher than EDS (13.8) and Oracle (20). PE gives investor an idea as to what the market is willing to pay for the company’s earnings. The higher the PE the more the market is willing to pay for the company’s earnings. PE, as an indicator, helps investor in deciding whether he should invest in a particular stock or not. A scrip trading at a PE of 15-18 times is generally regarded as a ‘fairly valued’ stock across markets, provided the company has decent earning potential.