Even as Nifty is trading at par with its historical PE average, nearly half of the index constituents including ONGC, BPCL, Tata Steel, Coal India quoted at up to 50 per cent discount to their historical valuation multiples. Reliance Industries, Tech Mahindra and LTIMindtree, on the other hand, are among index constituents that traded at steep valuation premiums at the end of August, data compiled by Motilal Oswal Securities suggest. Most of these stocks have average price targets that suggest only limited upside ahead.
Data showed the 12-month trailing PE for Nifty at 21.8 times stood near its long-period average of 22 times. Against this, the ONGC stock at a PE of 4 times traded at 50 per cent discount to its 10-year average of 8.1 times. State-run BPCL also traded at a 45 per cent discount, with PE of 5.1 times against 10-year average of 9.2 times. In the case of ONGC, an average target price of Rs 191, as suggested by Trendlyne, suggested a mere 3 per cent upside. BPCL's average target of Rs 426 though suggests a healthy 23 per cent upside potential.
For Tata Steel, PE at 11.9 times was at a 39 per cent discount to its 10-year average of 19.7 times. The average target price on the counter at Rs 34 suggests a muted 4 per cent upside potential. Coal India and Apollo Hospitals traded at discounts of 37 per cent and 33 per cent, respectively. Coal India's average target price, as per Trendlyne, suggests nil upside potential. The Apollo Hospitals' average target of Rs 5,519, on the other hand, suggested a 10 per cent upside potential.
There were many stocks that traded at steep premium over historical PE averages. Divi's Labs shares traded at a 49 per cent discount to its historical PE of 32.80 times. But the stock's average target price at Rs 3,354 suggests a 10 per cent potential downside. Reliance's average target suggests a 16 per cent upside while Grasim's average target price suggests a 6 per cent likely upmove ahead. Tech Mahindra's average target price suggests a 14 per cent downside potential; for LTIMindtree, a 4 per cent downside potential is likely as per the average target price. These stocks traded at 30-48 per cent premium over their historical PE averages.
Among largecaps, Motilal Oswal Securities prefer ICICI Bank, ITC, Bajaj Finance, L&T, HCL Tech, Titan, Sun Pharma amd Mahindra & Mahindra, among others. Axis Securities likes stocks such as ICICI Bank, Maruti Suzuki India, State Bank of India, Lupin ltd, and ITC. Kotak Institutional Equities' top investment ideas included Reliance Industries and Sun Pharma.
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