Understanding PE:

A bull market is marked by a rise in the Price-to-Earnings (P/E) ratio, whereas a bear market records a fall in the P/E ratio. The P/E ratio, obtained by the stock price divided by earnings per share, is a significant metric.
The P/E ratio differs widely among sectors:

• Financial sector generally stands at a P/E of 2.5 times the GDP.
• Cement sector generally stands at 1.5 times the GDP.
• P/E of the Tech sector is directly dependent on NASDAQ movements.
• IT services P/E tends to follow Accenture’s performance.
• The Metal sector is cyclical by nature and heavily reliant on China’s economic activity.
• It’s also necessary to keep in mind each industry’s past P/E ratios.
  The market P/E is hugely influenced by the RBI-set interest rate. The lower the interest rate, the higher the market P/E usually will be. For example, if the general market P/E stands at 15 (say, computed as 100/7), a bull market can put a premium over it, usually more than the country’s GDP by some multiple.
  In a bull market, sectors that are in vogue command larger P/E ratios–often twice the average market P/E. As an illustration, if the average market P/E is 24, a popular sector may have an average P/E of 30. Applying this 24 P/E to the size of GDP allows us to approximate the market capitalization, with in-vogue sectors contributing most to this increase.
  On the other hand, during a bear market, the overall market capitalization shrinks, going below the expected P/E (say, below 15). The size of the whole market may even decrease to around 0.75 times the GDP.
  Hence, by taking into account global and domestic economic conditions, RBI interest rates, GDP, per capita income, and what sectors are in vogue, the market can be observed daily and forecasts can be made.