Over half of Nifty going at a discount, but index is up
It’s P/B multiple, however, is in line with the 10-year average of 2.6.
Over half of the Nifty50 stocks are currently trading at a discount compared to their 10-year average price to earnings (P/E) ratio — a popular valuation measure. Also, 32 are trading at a discount to their 10-year average price to book (P/B) ratio — a valuation ratio based on a company’s assets, data showed.
But, Nifty is trading above its 10-year average P/E ratio. According to data compiled by brokerage Motilal Oswal Securities, the Nifty is currently trading at a P/E multiple of 18.2 times against tenyear average of 17.9. It’s P/B multiple, however, is in line with the 10-year average of 2.6.
The trend indicates the broader weakness amongst India’s top 50 stocks that has not been captured at the index level.
“The movement in the Nifty during the last few years has largely been driven by a handful of stocks,” said Gaurav Dua, head-capital market strategy, Sharekhan. These include HDFC, HDFC Bank, Reliance Industries, TCS and Infosys. “This skewed rally of select few stocks has led to a situation where majority of the Nifty stocks are now trading at lower valuations while a few stocks continue to command premiums.”
While Nifty has fallen 8 per cent from its January peaks, some of the stocks have witnessed much steeper falls. For instance, Yes Bank shares have lost over 50 per cent since the beginning of the year while Maruti Suzuki is down 25 per cent.
State-owned entities lead the pack of stocks that are trading at a discount to their long-term price to earnings. ONGC is currently trading at 51 per cent discount to its 10-year P/E ratio while Bharat Petroleum and GAIL are trading at discounts of 27 per cent and 39 per cent, respectively.
Auto stocks, too, are trading at deep discounts with companies such as Mahindra & Mahindra and Hero MotoCorp trading over 15 per cent lower than their average price to earnings. The sector has been impacted by slowdown in demand leading to a slump in sales of both two and four wheelers.
At the P/B level, IndusInd Bank is trading 12 per cent lower than its longterm average while Indiabulls Housing Finance is at a 47 per cent discount.
“The sell-off is happening across the market expect for those handful stocks where bulk of the mutual fund money is going,” said G Chokkalingam, founder, Equinomics Research and Advisory.
“There are several concerns like slowdown in demand, lacklustre earnings and uncertainty about monsoon and hence investors are turning cautious.”