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    Sensex at record high but over 200 stocks are trading below 5-year average PE level. Should you buy?

    Synopsis

    In the financials basket, HDFC Bank, ICICI Bank, SBI, HDFC, Bajaj Finance, Kotak Mahindra Bank and Axis Bank are also on the list. However, while evaluating banks and other lenders, price-to-book value (P/B) is more appropriate than PE as banks earn income based on their balance sheet size.

    Sensex at record high but over 200 stocks are trading below 5-year average PE level. Should you buy?iStock
    NEW DELHI: Taking the prices of many stocks to record high levels, Sensex and Nifty are now trading in uncharted territory. But over 200 stocks, including D-Street favourites Titan, HUL and ICICI Bank, are still below their 5-year average PE levels.

    An analysis of stocks with a market capitalisation of over Rs 500 crore shows that the valuation of 201 counters is not as demanding as compared to their long-term averages.

    Out of them, at least three stocks have doubled so far in the calendar year 2022. Deepak Fertilisers and Petrochemicals is trading at a TTM PE of 8.68 which is below its five-year average PE of 11.13. The stock is, however, up 114% year-to-date (YTD). Similarly, PSU lender Bank of Baroda and Pepsico India bottler Varun Beverages have also doubled wealth this year.

    More than half of the stocks have, however, given negative returns so far in the calendar year 2022, shows ACE Equity data. Midcap IT stock Zensar Technologies is the top loser in the pack with a YTD loss of about 58%.


    Among bluechip largecap stocks, HUL is now trading at a PE of 61.5 as against its long-term multiple of 63.10. Bharti Airtel stock is also relatively less demanding than its own historical average.

    In the financials basket, HDFC Bank, ICICI Bank, SBI, HDFC, Bajaj Finance, Kotak Mahindra Bank and Axis Bank are also on the list. However, while evaluating banks and other lenders, price-to-book value (P/B) is more appropriate than PE as banks earn income based on their balance sheet size.

    Shares of Radhakishan Damani-owned Avenue Supermarts are now trading at around 110x against the average of 131x. Titan is also trading at 73x, lower than its long-term average multiple of 131x.

    What should investors do?
    For the sake of this exercise, we considered only the widely-used metric of price-to-earnings (PE) multiple. However, while making a call investors must take into account other relevant valuation parameters as well as business-related fundamentals. Stocks that appear cheap can often turn out to be value traps as the valuation is often inexpensive for a reason.

    While the ongoing rally has been largely led by banks, FMCG, PSUs, auto and metal stocks, counters in the broader market have been left ignored by investors. Nifty Smallcap index is down nearly 12% YTD as against Nifty’s 8% upside.

    Besides banks, analysts are bullish on FMCG, realty, infra and auto stocks.

    "We have been recommending FMCG sector to delivery-based traders. That sector has seen a good base formation in the form of a multi-week triangular pattern and has broken out on the upside. So FMCG counters are expected to lead in the next leg up for the market," said Gaurav Ratnaparkhi- Head of Technical Research at Sharekhan by BNP Paribas.

    Dabur and HUL are his preferred picks in FMCG space for the next few weeks.

    Global brokerage Morgan Stanley is overweight on financials, technology, consumer discretionary and industrials.

    (With data inputs from Ritesh Presswala)

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

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    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

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