The Price-Earnings (P/E) ratio is a widely used measure of the expected performance of companies, and it has almost invariably been calculated as the ratio of the current share price to the previous year's earnings. However, the P/E of a particular stock is partly determined by outside influences, such as the year in which it is measured, the size of the company, and the sector in which the company operates. Thus, the present paper is based on the examination of various parametric determinants of P/E ratio in the Indian capital market, and it is found that the results of multiple regression model based on standardized variables indicate that `variability in market price' and `size of the company' were the most important determinants industry-wise as well as in aggregate analysis.

The Price-Earnings (P/E) ratio is the most popular parameter of stock analysis, although there are other important factors which an investor should consider before taking an investment decision. The P/E is calculated by taking the share price and dividing it by the company's earnings per share. The P/E gives an idea of what the market is willing to pay for the company's earnings. The higher the P/E, the more the market is willing to pay for the company's earnings. Some investors read a high P/E as an overpriced stock, which may be the case sometimes; however, it also indicates that the market has high hopes for this stock's future and has bid up the price. Conversely, a low P/E may indicate a "vote of no confidence" by the market, or it could mean "this is a sleeper that the market has overlooked". Known as value stocks, many investors made their fortunes spotting these "diamonds in the rough" before the rest of the market discovered their true worth. The P/E effect has been widely documented since Nicholson (1960) showed that companies having low P/E ratios on an average subsequently yield higher returns than high P/E companies, and this difference is known as the value premium. A low P/E ratio is used as an indicator of the desirability of particular stocks for investment by many value/contrarian fund managers. The value premium is mostly positive through time, and a large number of studies have confirmed its presence. While the continued existence of a value premium is puzzling for academics, a plausible explanation is that it provides compensation for the extra riskiness of value shares. However, the P/E is the result of a network of influences, as the share price of a company is influenced not only by characteristic factors particular to that company, but also by movements in prices on the market as a whole, the sector in which the company operates, and numerous other factors such as company size, variability in earnings, dividend payout ratio, and debt-equity ratio. Therefore, an attempt has been made in the present study to examine the various parametric determinants of the P/E ratio of corporate equity in the Indian capital market.

Applied Finance Journal, Parametric Determinants, Price-Earnings, P/E, Indian Capital Market, Investment Decision, Economic Environment, Market Volatility, Standard Deviation, Growth Rate in Market Price, GRMP, Corporate Equities, Debt-Equity Ratio, Regression Analysis, Regression Coefficient.