If a stock is trading below its average 5-years PE and PB it means that stock is trading below its fair value, and it is just a matter of time before prices correct themselves and converge back towards its fair value.
The outbreak of COVID-19 has put immense strain on the economy not just in Indian but across the globe. With most economists across the globe looking at a near-zero growth for the India GDP in the forthcoming quarters, the capital market is factoring the worst.
After falling by nearly 40 percent from the highs, Nifty has recovered more than 20 percent but is still down in double digits from the record highs. But, the recent corrections has made valuation reasonable not just for Nifty but for most of the blue-chip names.
Valuations of Indian equities are well below their long-period averages. The Nifty trades at 12-month forward P/E of 12.7x, at a 30 percent discount to its long-period average of 18.1x.
“The Nifty’s P/B of 1.9x is also below its historical average of 2.6x (26% discount). At the current trailing P/E of 16.2x and forward P/E of 12.7x, we see limited triggers for further re-rating, unless accompanied by a material surprise in earnings,” Motilal Oswal highlighted in a report.
The ‘Black Swan’ event in the form of COVID-19 fuelled lot of fear and lockdown scenarios observed across the globe is likely to put further strain on the economy, feel experts.
But, if you are value investors then this is the right time to pick jewels for your portfolio which are available at a steep discount compared to January prices.
There are as many as 23 Nifty50 stocks that are trading below their respective 5-Year Average P/E as well as P/B ratios, a Motilal Oswal report showed.
The list includes names like Wipro, M&M, Bajaj Auto, Grasim Industries, ITC, SBI, Vedanta, ZEE Entertainment, GAIL India, Hindalco, Coal India, and ONGC, etc. among others.
“Certainly some of the quality mid-caps, large-caps, and more importantly even companies from the Nifty 50 list are available at historic low valuations which are only possible at times of panic or crisis,” Paras Bothra, President of Equity Research, Ashika Stock Broking told Moneycontrol.
“While there will be speculations over the quality of assets in the financial space once the economy reopens and loan moratorium period is over. Nevertheless, strong names with quality management which have got over the crises before are expected to sail over this crisis as well,” he said.
Note: Companies given in the list are for reference only --
If a stock is trading below its average 5-years PE and PB it means that stock is trading below its fair value, and it is just a matter of time before prices correct themselves and converge back towards its fair value, say experts.
“At present, we can see the market also on a path of correction therefore with proper judgment, an informed decision can be made for value buying. Investors should try to accumulate stocks as they have the capability to generate good returns over mid to long term,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.
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