In my last article I had explained what is a stock Index ? How it is constructed ? and Why it goes Up or Down?, the objective of writing that article was to explain construction and functioning of stock indices and also to explain that  over a long run, stock indices can grow to any levels depending upon growth of economy and profitability of the companies in that indices. Normally a layman investor doesn’t understand all these fundamental factors and lives with a myth that stock indices like Sensex was at peak in 2008(21k+) and it crashed from that level and write now it is at 26K+ levels so markets are at peak and have become very risky. But they are not able understand relationship between growth in Earnings Per share and indices. Here in this article, I will try to explain about relationship between growth in Earnings Per Share and Equity Indices, with history of Sensex and its Price to Earnings Ratio and how to take your investment decisions based on PE Ratio.