Stocks from sectors such as insurance, automobiles, and pharma are significantly discounted to long-term average valuations.
Stocks such as ONGC, Tata Steel, SBI Cards, UPL, HDFC Asset Management Company, and Tata Power, among others, are trading at more than 25% discount to their long-term average price to earnings (PE) ratio – a popular valuation measure. According to Bloomberg consensus estimates of analysts, many of these stocks could return over 20%.
“It is a once-in-a-lifetime opportunity to add stocks currently after the kind of pressure witnessed in the last couple of months,” said Varun Saboo, head of equities at Anand Rathi Shares and Stock Brokers. “It is important for investors to buy and hold stocks with a long-term perspective and should buy all the quality names coming at cu rrent attractive valuations.”
The Nifty has declined 1% in the last year and 8% from the yearly high touched in December.
Tata Steel, after a 21% correction in the last year, is available at a 48% discount to its 10-year average. The stock is expected to give a return of 23%, as per consensus estimates. Tata Power has declined 23% in one year and is available at a 26% discount.
The Nifty has declined 1% in the last year and 8% from the yearly high touched in December. The NSE 100 index dropped 5% in the past year and 11% from its 52-week high. Both indices are currently trading 8% discount to their respective 10-year average.
Analysts said many quality stocks available at 20-25% discount to current peak levels could be good buys.
“The annual sale in the equity market is on, make the best of it,” said Gaurav Dua, head of capital market strategy at Sharekhan. “Every year, there is some reason for the 10-15% decline in Nifty…last year, it was the Russia-Ukraine conflict, and this year, it is the banking crisis. In hindsight, it has been an opportunity to buy.”
According to Mahesh Nandurkar, head of research at Jefferies India, the recent correction in the market has made valuations more palatable at 17.2 times one-year forward earnings. “The valuation in terms of one-year forward consensus PE had declined 25% from October 2021 peak, almost matching the 33% PE contraction during the 2011 tightening cycle when repo rates went up by 375 bps versus 250 bps this cycle.”
