Value investing: 30 of Nifty 200 stocks still trading at a discount, can offer up to 30% returns

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Mumbai: Stock market valuations have turned rich after the recent run-up, resulting in value-conscious investors keeping to the sidelines. Analysts, however, say there are still a few shares where valuations are below their long-term averages. According to an ET study, 30 out of the Nifty 200 index stocks are still trading at a discount to their respective long-term average valuations. These include M&M, , , , Coal India, REC, , HPCL . These stocks could offer 10% to 30% returns over the next 12 months, according to analysts’ estimates.

“The benchmark indices are trading at 15-20% premium to the long-term average valuation multiples and valuation appears little stretched in some of the growth stocks now,” said Gaurav Dua, head capital market strategy, Sharekhan. Nifty’s Price to Earnings (PE) ratio is at 21 times FY22 estimated earnings, which is higher than most other emerging markets. Dua said his firm has increased allocation to SBI, Powergrid, Petronet LNG, GAIL, BPCL, M&M, Federal Bank, and Axis Bank of late.

For instance, analysts see scope for re-rating in M&M as the group has been focussing on better allocation of capital. Lenders such as Axis Bank and Federal Bank, which have boosted their balance sheets, could benefit from the expected upturn in credit demand from corporates.

Majority of the stocks in the ET study are part of the value basket. As a theme, value investing has been working well globally and in India since November when drug makers announced vaccines against coronavirus were ready to hit the market. Value indices have outperformed growth since then. Value stocks have come back in focus with many investors scouting for winners with reasonable valuations. Analysts said value could continue to outperform growth globally as expectations of an economic revival and lower real rates near term have boosted appetite for stocks that have been ignored in recent years.

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