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Nifty trades below its 10-year average P/E; should you bet on large, mid or smallcaps?

Nifty trades below its 10-year average P/E; should you bet on large, mid or smallcaps?

Data available with Motilal Oswal Financial Services showed that the 50-share index traded at 18.4 times FY23E, below its 10-year average price-to-earnings (P/E) of 19.5 times. Here's what the brokerage house thinks could be a sound investment strategy.

Nifty trades below its 10-year average P/E; should you bet on large, mid or smallcaps? Nifty trades below its 10-year average P/E; should you bet on large, mid or smallcaps?

Amid the ongoing volatility in the domestic equity markets, the benchmark NSE Nifty index slipped below its long-term average valuation ratio. Data available with Motilal Oswal Financial Services showed that the 50-share index traded at 18.4 times FY23E, below its 10-year average price-to-earnings (P/E) of 19.5 times. Considering the present market scenario, the brokerage finds more value in largecaps than midcaps.

In the largecap space, Motilal Oswal Financial Services is positive on players like Reliance Industries, Infosys, ICICI Bank, State Bank of India, Bharti Airtel, ITC, Titan Company, UltraTech Cement, Mahindra & Mahindra, Hindalco, and Apollo Hospitals. On the other hand, it also likes Cholamandalam Investment and Finance, Macrotech Developers, Gland Pharma, Star Health, Jubilant FoodWorks, L&T Technology Services, Motherson Wiring, Angel One, Sapphire Foods, VRL Logistics, and Lemon Tree Hotel in the midcap and smallcap space.

On a year-to-date basis, the adverse macro backdrop with heightened worries about rising interest rates, elevated crude oil prices and liquidity tightening have kept the market jittery. As a result, the BSE Sensex and NSE Nifty index cracked around 9 per cent during the first half of 2022. At present, half of the Nifty components including ONGC, Tata Steel, Coal India, Apollo Hospitals and JSW Steel are trading at a discount to their long-term historical averages.

On the other hand, brokerage Axis Securities is positive on Indian equity markets. It believes that the Nifty index may hit 18,400-mark by the end of March 31, 2023, showing an upside of 15 per cent from the current levels.

Axis Securities is bullish on ICICI Bank, Bajaj Auto, Tech Mahindra, Maruti Suzuki India, State Bank of India, Bharti Airtel, Cipla, Federal Bank, Varun Beverages, Ashok Leyland, Astral Ltd (India), Bata India, APL Apollo Tubes, HealthCare Global Enterprises, Praj Industries and CCL Products (India).
 

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