Re-rating in the stock markets simply means that investors are willing to pay a higher price for shares, usually in anticipation of higher earnings in the future. What re-rating of shares does is that it expands the P-E ratio. Here is an example. If shares of company A are trading at Rs.100 per share with earning per share at Rs.10, it also means a P-E of 10. But if the share price shoots up to, say, Rs.200 and the earnings per share also goes up to Rs.15, the new P-E will be 13.3, which is higher than the 10 in the previous period. If the market is willing to pay a higher price compared with earnings for the shares of company A, it will be termed as re-rating of shares by the market.
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