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Price-to-Book ratio is a metric that investors use extensively to determine the valuation of a stock. It helps to understand if a stock is undervalued or overvalued. It is calculated by comparing the current market price of a stock with its book value. The book value is a measure of a company's total assets excluding its total liabilities.
Like mutual funds, you can invest in stocks through SIPs too. However, there is a catch – you must have an eye on market movements, their effects on the stocks you have chosen and your ability to either switch between stocks or pause your SIPs when no longer required.
The National Stock Exchange (NSE) has changed the methodology for calculating the Price to Book (PB) ratio of the Nifty index, leading to a decrease in its valuation measure. The PB ratio dropped by nearly 20% without the index falling, making Nifty's valuations cheaper. The change involves factoring in the net worth of each index constituent at the consolidated level in the annual financials, as opposed to standalone earnings. The PB ratio compares market price per share to book value per share and helps investors determine whether a stock is overvalued or undervalued.