ONGC, Tata Steel, Coal India, JSW Steel, ITC and Dr Reddy's Labs are among over half of Nifty stocks that are trading at up to 72 per cent discount to their 10-year valuation averages. This is even as the 50-pack barometer is trading at record high levels, Motilal Oswal's latest bulls & bears report suggested.
Many of these stocks have price targets that suggest limited upside ahead.
The steepest discount for any Nifty constituent is 72 per cent. ONGC's 12-month trailing PE multiple at 2.4 times, as of November 30, was at 72 per cent discount to its historical average of 8.3 times. The oil & gas sector, on the other hand, traded at a P/E ratio of 12.6 times against the historical average of 11.9 times. ONGC has an average target price of Rs 174.57, suggesting a 21.44 per cent potential upside. This is as per publicly available data with Trendlyne.
Tata Steel shares traded at a 63 per cent discount at 7 times (November-end) against a 10-year average PE of 19 times. Metals, as a sector is trading at an EV/Ebitda ratio of 4.9 times, 25 per cent lower than its 10-year historical average of 6.6 times.
The average brokerage target on Tata Steel, as per Trendlyne, stands at Rs 105.43, which suggests a 8.99 per cent potential downside for the stock.
Coal India traded at a 47 per cent discount to its historical average while JSW Steel and Dr Reddy's Labs traded at discounts of 35 per cent and 26 per cent, respectively. This was on a trailing PE basis.
Coal India's price target suggests 19.40 per cent potential upside; JSW Steel's price target suggests a 25.4 per cent potential downside. Dr Reddy's Lab's price target, meanwhile suggests a 15 per cent upside potential. The government recently rolled back the export duty on steel and iron ore to previous levels. However, commodity prices remain weak on the back of concerns over Chinese economic growth and nationwide protest due to the strict implementation of its zero-Covid strategy.
Among sectors, private lenders such as IndusInd Bank, HDFC Bank and Kotak Mahindra Bank traded at up to 42 per cent discount to their trailing 12-month price-to-book value (PBV). Overall, the private banking space is trading at a PBV ratio of 2.7 times, marginally above its historical average of 2.5 times.
"Most banks expect the momentum in loan growth to sustain, led by continued traction in the Retail and SME segments, while the corporate segment is likely to witness a healthy recovery, with strong systemic loan growth for the system (17 per cent) in November. While we expect the momentum to sustain, we remain watchful of further monetary tightening and rising inflation, which can dent demand and delay the recovery in the capex cycle," Motilal Oswal said.
IndusInd Bank's price target suggests a 8.6 per cent upside, HDFC Bank 13.38 per cent and ICICI Bank 10.25 per cent upside.
FMCG major ITC traded at a PE of 20.7, down 16 per cent from its 10-year average of 24.5, suggests Motilal Oswal's study. ITC's average target price at Rs 373.92, as per Trendlyne, suggests a potential 11.9 per cent upside.
Healthcare stocks Apollo Hospitals, Sun Pharma and Cipla; and aluminium maker Hindalco are a few other stocks that trade at a discount to historical averages. Apollo Hospitals' average target suggests 10.2 per cent potential upside, Sun Pharma's 7 per cent, Cipla's 8.2 per cent and Hindalco's 7 per cent.
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