BEL, TechM among Nifty stocks trading at premium valuations; 5 shares at steep discount

Bharat Electronics Ltd (BEL), Grasim Industries Ltd, Power Grid Corporation of India Ltd (Power Grid), HCL Technologies Ltd and Tech Mahindra Ltd (TechM) are among Nifty stocks that still command huge premiums over their historical valuation multiples. Coal India Ltd, Dr Reddy’s Laboratories Ltd (DRL), Apollo Hospitals Ltd, Maruti Suzuki India Ltd and ONGC Ltd are some Nifty constituents that trade at huge discounts to their historical valuations.

Coal India traded at 5.5 times its trailing 12-month earnings per share (EPS) at February end against a 10-year average of 9.3 per cent. Dr Reddy’s Labs at 15.2 times trailing 12-month EPS traded at a 40 per cent discount to its 10-year average PE of 25.2 times. In the case of Maruti Suzuki India Ltd, the stock traded at 23.5 times its trailing one-year EPS, a 24 per cent discount to its average of 31 times for the 10 years. Apollo Hospitals traded at 38 per cent discount while ONGC at 23 per cent discount.

BEL, on the other hand, at 32 times traded at 158 per cent premium over its 10-year PE average of 12.4 times. Grasim Industries commanded a PE of 24.2 times against a 10-year average of 15.6 times, suggesting a premium of 55 per cent. IT stocks HCL Tech and TechM premiums of 34 per cent and 32 per cent, respectively.

"The technology sector is trading at a PE ratio of 23.9 times, at a 14 per cent premium to its long-term average of 21 times. While the current P/E remains above the long-term average, it has moderated following the recent correction in Indian capital markets, driven by uncertainties in the US economy regarding inflation," MOFSL noted.

It noted that global IT companies such as EPAM, Globant, and Endava gave underwhelming guidance, suggesting a cautious IT spending environment in the near term.

Utility Power Grid still commanded 42 per cent premium over its 10-year PE of 9.3 times, at 13.3 times.

Among the largecap stocks, MOFSL likes Reliance Industries Ltd, Bharti Airtel Ltd, ICICI Bank, SBI, Hindustan Unilever Ltd (HUL), L&T, Sun Pharma, Maruti Suzuki, M&M, Titan, Trent, and LTIMindtree.

"The market correction has coincided with a slowdown in earnings growth, as the Nifty-50 has managed only 4 per cent PAT growth in 9MFY25. The expectations for FY26 corporate earnings are still somewhat elevated, in our opinion, given the underlying macro-micro backdrop and are thus ripe for further downgrades," MOFSL said.

The recent correction in broader markets factors in some of the potential disappointments in earnings ahead, it said.