The Nifty is hovering near record highs. However, most of its components are trading at a huge discount to their historical valuations. Motilal Oswal Financial Services says the Nifty has managed to climb to 12,000, thanks to the performance of only 15 stocks. Meanwhile, the remaining 35 scrips are showcasing the Nifty to be below 9,000, it says.
A comparison of the price-to-earnings (P/E) or price-to-book (P/B) multiples of all the Nifty stocks throws up the list of stocks that are being favoured and neglected. Stocks like Bajaj Finance, RIL and Titan are trading at a substantial premium to their average five-year P/E or P/B, while Sun Pharma, Zee Entertainment and Indiabulls Housing are quoting at a huge discount. “Investors are taking continued refuge in the quality and earnings predictability theme in an environment of economic slowdown; and there is a lack of pick-up in broader market’s earnings growth,” says the brokerage.
Should investors consider buying stocks that are available at a discount? “Predicting the timing of fortune is always fraught with risks, more so in the current underlying economic scenario,” the brokerage says.