A dozen stocks, mostly banking and energy stocks, in the Nifty50 index are trading below a price/earnings ratio (P/E) of 20, providing an opportunity to investors despite broader concerns related to expensive valuations in the Indian market. As of Monday’s closing, the benchmark Nifty50 index had a P/E of 20, a decline from a P/E of 24.4 on September 27, 2024. Nifty has a one-year median P/E of 22.5, which is in line with the five-year average P/E of 22.6.
Nifty50 stocks trading below a P/E of 20 have a strong buy call from analysts. The Price-to-Earnings (P/E) ratio measures a company’s stock price relative to its earnings per share. It helps investors assess valuation, growth potential, and compare stocks within industries.
These stocks include banking behemoths like the State Bank of India, HDFC Bank, ICICI Bank, and big names from energy sectors including ONGC, Coal India and NTPC. The mere fact that these stocks are trading below 20 P/E does not make them an attractive buy for investors, but that some of these companies have seen massive corrections in prices also make them lucrative investment options. Most of these stocks have strong Buy calls from brokerages.
HDFC Bank Ltd, for example, has an average target of Rs 1,972.27. The consensus, as per analysts covering the stock, represents an upside of 15.31% from the last price of ₹1,710.40. The stocks of the bank are currently trading at 18.82 times its earnings.
ICICI Bank, the country’s second-largest private sector lender, has an average target of ₹1,493. The consensus estimate represents an upside of 17.65% from the last price of ₹1,269. Axis Bank has an average target of ₹1,242 and the consensus estimate represents an upside of 20.10% from the last price of ₹1,034.15.
State Bank of India, whose counter trades at a P/E (8.14x) much lower than its private peers, has an average target of ₹958.17. The consensus estimate represents an upside of 32.50% from the last price of ₹723.15.
Banking stocks have been under pressure for the last few months owing to rising NPAs and tight liquidity concerns, and are trading at valuations lower than their historical averages. Analysts believe that the worst for banking stocks is over and that, with valuations at a discount, they are a good buy for long-term investors.
Energy sector stocks, with a P/E of less than 20 in the Nifty50 pack, also have a strong buy call from analysts. Coal India has an average target of ₹488.91 even though it has fallen more than 25% from the highs of late September 2024. The consensus estimate represents an upside of 26.74% from the last price of ₹385.75.