Two-thirds of sectoral indices still a premium to 10-year averages

Despite the benchmark indices falling over 10 per cent from their highs, two-thirds of sectoral indices still trade at a premium to their 10-year average price-to-earnings (P/E) multiples, according to a report by domestic brokerage Motilal Oswal.

 

Among the sectors commanding the highest premiums are infrastructure, utilities, and consumer durables. Conversely, media, banks, and auto companies are trading at a discount to their historical averages.

 

Among prominent sectors, IT is trading at a premium, while banks are available at a discount. Consumer stocks are largely in line with their long-term averages.

 

The IT sector, with a P/E ratio of 27.6x, is trading at a 31% premium. This premium is driven by guidance upgrades from most software exporters following their third-quarter results.

 

 

“The commentary in pockets turned incrementally positive, and we believe the tech spending recovery—primarily driven by BFSI over the past six months—is now expanding into other verticals such as hi-tech and retail,” Motilal Oswal observed.

 

Private banks are currently trading at a price-to-book (P/B) ratio of 2.2x, compared to their historical average of 2.5x, indicating a discount. “Loan growth stood at 11.5 per cent, down from its peak of 18 per cent, as the deposits market remains competitive. Additionally, a higher credit-deposit ratio is constraining loan growth, while stress in unsecured persists. Deposits growth stood steady, while the CASA ratio is expected to see a negative bias amid faster growth in term deposits,” noted the brokerage.

 

The consumer sector's P/E and P/B ratios are currently at 42.9x and 10.4x, respectively, which are in line with their 10-year averages. However, the sector faces challenges- demand recovery continues to be delayed, with urban consumption under pressure. Margins are also strained due to high food inflation and rising palm oil prices. To offset these pressures, companies are implementing price hikes.