Yet about two dozen Nifty50 stocks are still quoting at a discount to their long-term averages. Analysts say a few of them can be good buys at prevailing prices.
Nifty50 now trades at a 12-month forward P/E of 20.1 times, 7 per cent above its historical average of 18.8 times. On a price-to-book basis, it trades well above its historical average of 2.6 times.
But within this Club Elite, 22 index stocks are trading below their 10-year average PEs (P/B for BFSI).
ETMarkets.comONGC, NTPC, Tata Steel and ITC are on the list of stocks trading below their historical averages.
ONGC trades at a 50 per cent discount to its 10-year average, NTPC trades at 49 per cent discount, Tata Steel at 44 per cent discount and ITC at 40 per cent discount. Coal India, in fact, trades at 58 per cent below its historic average.
Sector-wise, auto stocks Hero MotoCorp and Eicher Motors trade below their 10-year averages. In banking and financials, IndusInd Bank trades at 1.5 times price-to-book value against a historical average of 2.7 times, down 44 per cent. Mortgage financier HDFC trades at a 14 per cent discount. SBI, Axis Bank and HDFC Bank trade at marginal discounts of 3-4 times PB, suggests a Motilal Oswal study.
ETMarkets.comUltraTech Cement is the only cement stock in Nifty50 trading at a discount. Its index peers Grasim Industries and Shree Cement trade at 13-25 per cent premium valuations.
Among six consumer stocks, Asian Paints, Britannia Industries, HUL, ITC, Nestle India and Tata Consumer all trade at 23-45 per cent premium to their 10-year averages. ITC trades at a discount.
Analysts said compared with other sectors, consumer companies are less volatile, with relatively higher RoCEs and cash flows and, thus, the higher multiples are not surprising.
In the pharma space, Sun Pharma (18 per cent) and Cipla (10 per cent) trade below their long-term averages. Tata Steel (down 44 per cent) and JSW Steel (down 13 per cent) in metals, ONGC (50 per cent) and IOC (38 per cent) in oil & gas, Coal India, NTPC and Power Grid in utilities and UPL in agrochemicals sectors are all trading at discount to their long-term averages. The top five IT stocks trade at 23-69 per cent premium valuations.
Motilal Oswal Securities prefers ICICI Bank, SBI, UltraTech Cement, M&M, HUL and Titan and IT stocks Infosys and HCL Tech with the Nifty pack.
Among these, SBI, ICICI Bank and UltraTech Cement trade below their long-term averages, while M&M trades just above its long-term average.
The brokerage said domestic steel demand is likely to be impacted by local restrictions, but the same may get offset by higher exports and a decline in production.
In case of pharma sector, the second wave of Covid-19 in India has led to a demand surge for Covid-related drugs, such as Remdesivir and Favipiravir as well as other drugs used for prevention and treatment.
“While the non-Covid segment may again slow down due to reduced patient-doctor-MR connect, controlled operating cost may keep profitability at elevated levels,” it said.
Axis Securities in its May investment strategy said it is positive on ICICI Bank, SBI, Bharti Airtel and HCL Tech. Bharti is loss-making. ICICI Bank and SBI trade at discounts, but HCL Tech trades at higher valuations than its historical average.
HSBC said its stock selection is focused on last year’s underperformers, which offer defensiveness and a resilient earnings outlook.
The brokerage said it is looking at companies which have been disrupted by Covid-19 but still offer attractive valuation, besides Covid beneficiaries and structural winners that may see some correction (in part due to strong past performance) in this short-term vulnerability phase.
It believes HUL, Bharti Airtel and Axis Bank can act as defensives, while Titan, ICICI Bank, Asian Paints, Bajaj Auto and Bajaj Finance could emerge as structural winners.
Emkay has BPCL, ICICI Bank, SBI, Shree Cement and Tata Motors, among its top largecap overweights.
