ABC of Investment

Price to Earning (P/E) Ratio Suppose price of each Share of one Automobile Company PQR is Rs.500/- and that of another Automobile Company UVW is Rs.5000/-. Now, if you consider the share of UVW is overpriced than PQR just because of higher share price, you may be proved absolutely wrong. P/E Ratio is one of the important parameters to check and compare the proper valuation of stocks belonging to same sector. What is P/E Ratio? It is the ratio of current Share Price of one company and its Earning Per Share in last 12 months. Physical Significance of P/E Ratio: Suppose the P/E ratio of company PQR is 20 i.e. the investor will pay Rs.20/- for earning of Rs.1/- per share. Again consider the P/E Ratio of company UVW is 10 i.e. the investor will pay Rs.10/- for earning of Rs.1/- per share. So, share of PQR is overpriced and that of UVW is underpriced. P/E Ratio above 20 is generally considered higher. Higher P/E Ratio indicates higher valuation or price and fast growt

'Market Making' & 'Market Maker' Suppose one buyer is willing to buy a specific stock but there is no seller to complete his order. The reverse case may also occur in Stock Market. To sort out this real life situation, the concept of 'Market Making and Maket Maker' was introduced by SEBI (Securities and Exchange Board of India) in indian Stock Market.  Market Maker is typically an institution which is appointed by Stock Exchange to increase and meet demand-supply of shares in Stock Market. The Market Maker places buy-and-sell call at the same time for a specific time period for a guaranteed number of shares.  So, 'buy / sell' requirement of investor/trader is fulfilled by Market Maker's own holding or inventory of stocks. The Market Maker books profit by the difference between buy-call and sell-call placed by him.  Suppose the Market Maker places a quote of Rs.500-450, which means that the Market Maker will buy stock at R