Two-thirds of Nifty constituents trading at premium to historical averages

Rich valuations continue to remain a concern for Indian equities. About 60 per cent of Nifty constituents are currently trading at a prem­ium to historical averages. Firms trading at a significant premium to their historical avera­g­es include HCL Technologies, Titan, and Wipro, while those trading at a significant discount include Tata Steel, ONGC, and Coal India, according to Motilal Oswal Financial Services.

Two-thirds of sectors are trading at a premium to their averages. PSU Banks, for instance, are trading at a price to book (P/B) ratio of 0.9x, near the historical average of 0.8x. The earnings outlook is improving on account of a reduction in credit cost estimates as most PSBs have strengthened their provision coverages over the last couple of years. The consumer sector P/E of 43.9x in October is at a premium of about 17.6 per cent to its 10-year average of 37.4x. On a P/B basis, it trades at 11x, at a premium of about 10 per cent to its 10-year average of 10x.

“Consumer sentiment remains positive owing to low Covid cases, rapid vaccinations, and increased mobility. This bodes well for the ongoing festive season, which is expected to benefit from the pent-up demand. With the return of mobility, discretionary consumption would be upbeat, while staples demand would remain intact,” the brokerage said.