Value theme gains currency as low P/E multiples catch investors' fancy

In February, the bottom 33 Nifty companies in terms of P/E rose 17.3%, while top-tier P/E stocks shed 1.3%

Stocks quoting at low price-to-earnings (P/E) multiples have finally caught the fancy of investors. In February, the bottom 33 Nifty companies in terms of P/E rose 17.3 per cent, even as the top-tier P/E stocks fell 1.3 per cent. The 17 stocks in the ‘middle’ rose 7.5 per cent. The Nifty 50 index rose 5 per cent during the month.

The valuation of the top-tier stocks fell slightly from 36.8 times their estimated earnings for FY22 in January to 36.2 times in February. Valuation of the stocks at the bottom of the pyramid rose from 8.3 times to 9.6 times, while the middle pack rose from 19.4 times to 20.7 times, as per data by Motilal Oswal. “February saw clear rotation in performance from high P/E companies to value and cyclical companies.  Companies with value and cyclical attributes (Metals/Cement/Oil & Gas/PSUs) outperformed Consumer/Private Financials in the Nifty,” the brokerage said.  The list of ‘value’ stocks are dominated by public sector undertakings (PSUs).

About 22 companies in the PSU space rose at least 25 per cent in February, with state-owned banks such as Indian Overseas Bank (up 67 per cent in February), Bank of India (66 per cent) and Bank of Maharashtra (61 per cent) leading the charge. “PSUs posted strong gains on the back of renewed interest in the sector post the Union Budget – as the government reiterated its commitment toward privatization and singled out several assets for monetization,” the note by Motilal Oswal says.