Valuation check: 17 Nifty500 cos trade below 5-yr P/E despite giving 50% returns in FY23

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An analysis of the performance of stocks that are part of the Nifty500 index showed that at least 17 of them have given more than 50% returns so far in the current financial year, but

are still trading way below their 5-year average price-to-earnings (P/E) multiples.

Among the several metrics, price-to-earnings or P/E is one of the most widely used parameters by analysts to determine the value of a company during an apple-to-apple comparison. However, investors must consider other parameters such as the company’s fundamentals, earnings growth trend, capital allocation, etc. before deciding on buying or selling a stock.

Of the 17 stocks, four of them are in the banking sector. Shares of IDFC Bank,

, , and have gained 51-140% so far in FY23, but are trading quite below their 5-year average P/E, data showed.

Besides banks, index major Mahindra &

is another stock that has given stellar returns of more than 53%, but it is trading at 17 times on a trailing twelve months (TTM) basis, against the 5-year average P/E of 62 times.

Among other names in the midcap space, one stock that turned investors wealthier is Raymond. Following the whopping 70% gains so far in FY23, the stock is trading at 16 times on a TTM basis, against the 5-year average of 20 times.

In a separate analysis, data showed that 22 stocks in Nifty 500 have fallen by more than 25%, but are still trading well above their 5-year average P/E.

Information technology companies were the majority of the stocks trading expensive despite the bloodbath that the sector witnessed this year.

Nine technology stocks, including L&T Technology Services, LTIMindtree, Wipro,

, Mastek, Mphasis, Birlasoft, , and are trading at 4-36 times TTM, higher than the 5-yr average P/E, despite falling 27-71% so far in FY23.

Meanwhile, about 64 stocks are trading below their 5-year average P/E following the sharp correction in prices. Oil & Natural Gas Corp,

, Corp, , Oil India, BEML, Info Edge (India) Biocon, Divi’s Laboratories, , , , among others are the stocks in this category.

Due to losses at the consolidated level, Tata Motors is trading negative against its 5-year average P/E of 2.5 times. Another group company Tata Steel is trading below the 5-year average as earrings bore the brunt of higher input costs and subdued demand, denting share prices.

What should investors do?

PSU bank stocks have had a dream run, but analysts believe there is more steam left in

them as earnings visibility has significantly improved.

“PSU banks’ growth has picked up sharply over the past couple of quarters. While the pace of

growth is unlikely to sustain, growth could remain healthy at 12-14% in the medium term,” Credit Suisse said in its report.

Despite such a run-up, M&M remains a ‘strong buy’ for the majority of analysts as strong demand for passenger vehicles has bolstered the outlook for its sports utility vehicle portfolio.

Further, the increasing demand for electric vehicles in India is also expected to aid the company’s earnings growth.


Securities recommends investors to buy M&M stock with a 12-month target of Rs 1,470, implying an upside potential of over 16% from the current levels.

Analysts are also bullish on Tata Motors as they expect earnings to rebound for arm Jaguar Land Rover and turn cash flow positive. Further, the outlook for India business remains bright due to strong traction in both passenger and commercial vehicles.

“Tata motors is expected to report revenue of Rs 4,23,300 crore in FY25 from Rs 249,795 crore in FY22, delivering a CAGR growth of 19%. Hence, we would buy this stock based on the easing up of semiconductor shortage and huge runaway demand for EVs,” said Vinit Bolinjkar, head of research at Ventura Securities.

Bolinjkar believes that the current risk-reward is favourable for Tata Motors for a target of Rs 440.

The view for stocks in the information technology pack is mixed, as growth uncertainties prevail in the US and Europe, which are major markets for the pack. Analysts will closely monitor the management commentary on demand trends and client budgets for 2023 to gauge the potential impact on earnings.

“The whole IT pack has seen decent corrections from their 52-week highs, but in terms of valuation, all the stocks have not corrected up to their 5-year average,” said Nirvi Ashar, fundamental analyst at Religare Broking.

In the midcap space, Ashar is bullish on Birlasoft and sees scope for the stock to deliver returns of 25-30%. Among largecaps, the analyst is positive on Infosys and


(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 Economic Times)