With the NSE benchmark Nifty falling over 3 per cent in 2023 so far, more than half of the index constituents still trade at a discount to historic averages. Data showed a total of 40 Nifty stocks settled lower for February, with 70 per cent of the index constituents quoting in the red year-to-date. Tata Steel Ltd (down 64 per cent), ONGC (down 62 per cent), Coal India (down 44 per cent), Hindalco Industries Ltd (down 36 per cent) and JSW Steel Ltd (down 33 per cent) remained among the index stocks that are trading at steep discounts to their 10-year PE multiples.
On the other hand, Reliance Industries Ltd (up 43 per cent), Divi’s Labs (up 41 per cent), Grasim Industries (up 24 per cent), Britannia Industries (up 22 per cent), and Infosys (up 17 per cent) were among Nifty stocks trading at steep discounts to their historical average.
Among them, Tata Steel traded at 6.8 times its trailing 12-month EPS, which was at 64 per cent discount to its 10-year average PE of 19.1 times. The stock has an average target price of Rs 113.14, as per publicly available data with Trendlyne, suggesting a 5.74 per cent potential upside.
At a PE level of 3.2 times, ONGC shares traded at a discount of 62 per cent to their 10-year average of 8.4 times. Coal India's discount stood at 44 per cent to its average 10-year PE of 11 times. ONCG's average target price of Rs 179.75 suggests a 16.53 per cent potential upside ahead.
At 5.9 times, Hindalco Industries traded at a 36 per cent discount to its 10-year average of 9.1 times. Hindalco's average target price of Rs 521.67 suggests a 25 per cent potential upside from the prevailing level. JSW Steel also traded at a steep discount of 33 per cent over its 10-year average of 13.6 times. But its average target price suggests a 3.45 per cent potential upside.
On the flip side, Reliance Industries traded at 22 times its trailing 12-month EPS traded at 43 per cent premium over its 10-year average of 15.4 times. Reliance's average target of Rs 2,896 hints at 21 per cent potential upside.
At 43.4 times, Divi's Labs traded at a 41 per cent premium over its 10-year average PE of 30.8 times. Divi's price target suggests a 13 per cent potential upside.
Grasim traded at 24 per cent premium over its 10-year average of 12.7 times while Britannia Industries traded at a 22 per cent premium over its long-term average of 41.3 times. At 22.2 times, Infosys also traded at 17 percent premium over its 10-year average PE of 18.9 times. Grasim's target hints at 17 per cent upside while that of Infosys suggests 16 per cent gains ahead.
"Corporate earnings for 3QFY23 were below our expectations led by weak demand environment and macro headwinds, with financials and autos holding the fort once again. A slowdown in consumption is a material concern if trends don’t reverse immediately. Markets are trading lower YTD and valuations are in their fair value zone with Nifty trading at 17.5 times FY24E EPS and thus offering room for modest upside if corporate earnings do not see material downgrades ahead," said Motilal Oswal Securities.
Also read: SGX Nifty up 69 points: Asian markets fall, dollar moves lower, crude, FPI flows & more