Healthcare to metals sectors: Finding the discount sweet spot in Nifty50

Over 50% of benchmark index components defy highs

More than 50 per cent of the components in the National Stock Exchange Nifty50 Index are presently trading at a discount compared to their historical averages. This is the case even though the benchmark index is only 5 per cent below its all-time high.

The list of stocks trading at a discount primarily consists of companies in the automotive, banking, oil and gas, insurance, healthcare, and metal sectors.

Conversely, the technology, retail, and consumer sectors are predominantly trading at a premium.

An analysis by Motilal Oswal reveals that Grasim Industries, Reliance Industries, Tech Mahindra, and Divi’s Laboratories are trading at more than a 30 per cent premium compared to their 10-year average price-to-earnings (P/E) multiples.

Meanwhile, Oil and Natural Gas Corporation, Bharat Petroleum Corporation, Apollo Hospitals, and Tata Steel are trading over 35 per cent cheaper compared to their 10-year P/E multiples.

The benchmark Nifty is trading at nearly 18x its one-year forward earnings estimates, which is lower than its 10-year average of 20.1x. On a price-to-book basis, the index is trading in line with its 10-year average of about 2.8x.

In comparison to global peers, India’s P/E is only below that of the US and Japan but at a hefty premium to most emerging market (EM) peers. In the EM space, China commands a forward P/E of 11x, Taiwan 17.2x, South Korea and Indonesia about 14x each, and Brazil 8.3x.