Home Correction trading 50 Smart Stocks: Smart stocks trade at a discount to historical averages; top picks as D-St enters Q1 earnings season

50 Smart Stocks: Smart stocks trade at a discount to historical averages; top picks as D-St enters Q1 earnings season

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NEW DELHI: The recent correction in Dalal Street has caused Nifty50 valuations to fall below historical averages, making a host of stocks attractive on the valuation front. Currently, half of the index constituents are trading below their long-term valuation multiples; approximately two-thirds of the Nifty50 sectors are trading below historical averages. Some analysts felt that more value was visible in large caps than in mid and small cap stocks.

At the end of June, Nifty50 was trading at a 12-month forward P/E of 17.6x, a 9% discount to its long-term average. On a rolling basis, Nifty50 at 20.7x traded at a 3% discount to its LPA of 21.2x.

“The unfavorable macro backdrop, with heightened concerns over rising interest rates, high crude oil prices and tight liquidity, has kept the market volatile and jittery. After the correction, the Nifty50 is trading at 18, 4 times FY23E, below its 10-year P/E average of 19.5 times. We find more value in largecaps than midcaps, given the relative valuation equation,”

said in a note.

At a PE multiple of 1.9x, ONGC was trading at a 78% discount to its 10-year average of 8.5x. Tata Steel at 5.9x was trading at a 53% discount to its historical PE of 12.5x. Coal India (down 53%),

(down 38%) and JSW Steel (down 36%) are a few other stocks that are trading at significant discounts to historical levels.

There are other stocks, such as

(up 47%), (up 30%), Infosys (up 26%), (up 22%) and (up 22%) which are trading at a steep premium to their historical averages.

Agencies

On a sector basis, the automotive sector’s PE of 23 times is 8% off its historical average of 25 times. The metals sector is trading at an EV/Ebitda ratio of 4.6x, well below its 10-year historical average of 6.6x. Despite the recent correction, the tech sector is trading at a P/E of 22.2x, at a 19% premium to its historical average of 18.6x.

What do analysts like?
Ahead of the June quarter earnings season, the strategy notes of a few brokerages contain some common recommendations such as

SBI and , among others.

Axis Securities at ICICI Bank,

Maruti Suzuki, SBI, Bharti Airtel and Cipla among its top large-cap picks.

For Motilal Oswal Securities, Reliance Industries, Infosys, ICICI Bank, SBI, Bharti Airtel, ITC,

Mahindra & Mahindra, Hindalco and Apollo Hospitals are his best ideas from the largecap pack.

ICICI Bank, Maruti Suzuki, SBI, and

are the best choices.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)