Three-quarters of Nifty 50 stocks are now cheaper than what they were historically as the rout drives down valuations in Asia's most expensive market.
The 12-month forward price-to-earnings multiple of 37 of Nifty 50 companies is now lower than the five-year average, according to Bloomberg data. That's the highest number of stocks trading below their long-term valuation in at least a decade.
Valuations eased as Nifty 50 fell 8 percent in the last three months as liquidity concerns around non-bank lenders aggravated the selloff driven by trade war fears, rising crude and a weaker rupee. Still, the benchmark continues to be one of the most expensive indices in the world, and experts advise caution.
HSBC upgraded Indian equities to ‘neutral' from ‘underweight' but the brokerage said in a note that it's still cautious because the risks remain.
Ajay Srivastava, managing director of Dimensions Consulting, advised value investors to stay away despite cheaper valuations. Market valuations reflect the pessimism in the economy and system, he said. “Till there is no change in perception of India's future, valuations would not move higher. Current market valuation reflects the falling demand and uncertain and volatile political situation.”
Here are the stocks whose valuations have fallen the most:
Tata Motors
Declining China sales of Jaguar Land Rover, which contributes nearly 72 percent of the parent's revenue, trade war and volatility in the U.S. dollar against the pound lowered investor confidence in Tata Motors.
State-Owned Oil Companies
There are concerns that Oil and Natural Gas Corporation Ltd. may be asked to share subsidy burden if crude surges and retailers like Indian Oil Corporation Ltd. and Hindustan Petroleum Corporation Ltd. may not be able to maintain marketing margin.
Coal India
Stake sale by the government at a large discount and slowdown in volume growth has hurt shares of the world's largest coal miner.
Eicher Motors
Shares have fallen on an expected slowdown in Royal Enfield sales and recent strike at one of the manufacturing facilities.
Sun Pharma
A delay in benefits from Ranbaxy acquisition synergies, pricing pressure in its key U.S. market and pending issues related to its Halol plant have weighed on India's largest drugmaker.
Indiabulls Housing Finance
Shares fell as IL&FS group defaults triggered a credit crunch for non-bank lenders.
Grasim Industries
May have to infuse funds in Aditya Birla Group companies. Grasim Industries owns stake in four listed group companies—UltraTech Cement Ltd., Aditya Birla Capital Ltd., Vodafone Idea Ltd. and Hindalco Industries Ltd.
Yes Bank
Investor concerns stem from the RBI's denial for an extension to founder and Chief Executive Officer Rana Kapoor, and resignation of board members and a ratings downgrade.
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