Tata Steel, Coal India, HDFC Bank shares trade at discount to historical averages; Wipro, ITC at par

Domestic stocks might look expensive when one compares India's share in global m-cap with historical average or MSCI India's outperformance over MSCI EM index, but the NSE benchmark Nifty at a forward PE of 18.8 times till trades at a 6 per cent discount to its own long period average (LPA). More than half of Nifty stocks including Tata Steel, Coal India, HDFC Bank, BPCL and Apollo Hospitals traded below their historical valuation averages at June end, while many others including ITC and Wipro traded at par with their long-term averages, data compiled by Motilal Oswal Securities showed.

Data showed ONGC at a PE of 3.4 times traded at a 59 percent discount to its 10-year PE average of 8.2 times. At 4.4 times, BPCL traded at a 52 per cent discount to its historic average of 9.2 times. For Tata Steel this discount is 49 per cent. This Tata group stock traded at 10 times against its 10-year average of 19.4 times. Coal India (36 per cent) and Apollo Hospitals (25 per cent) are other Nifty stocks trading at steep discount to historical averages.

With ITC shares hitting record high every passing day, the stock now commands a PE of 25 times which is at 3 per cent premium over its historical average of 24.2 times. A host of consumer stocks traded at huge premium over their historical PE averages. Britannia Industries and Nestle India traded at a 27 per cent premium each, Tata Consumer at 25 per cent, Asian Paints at 13 per cent and Hindustan Unilever at 8 per cent premium.

The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance, said Kotak Institutional Equities in a recent note.

"We struggle to find ideas in the consumption, investment and outsourcing sectors after the sharp run-up in several of our favoured sectors and stocks in the past two months. The BFSI sector is the only sector that offers value although even insurance stocks have rallied in the past few days," it said.

Data showed HDFC Bank traded at 2.8 times its book value against its historical average of 3.3 times. IndusInd Bank traded at 35 per cent discount to its historical average of 2.5 times, while Kotak Mahindra Bank at 2.7 times traded at 18 per cent discount to historical averages.

Divi’s Labs (53 per cent premium), Grasim Industries (47 per cent) and Reliance Industries (47 per cent remained some stocks trading at huge premium to historical averages.  Meanwhile, Wipro (2 per cent, Infosys (7 per cent) and TCS (7 per cent) remained a few IT stocks that traded around their historical averages. HDFC Life, Bajaj Finance, Mahindra & Mahindra and Bajaj Auto also traded near their historical averages.

Also read: Stocks to watch: Bajaj Finance, IDFC First Bank, DMart, Reliance Industries, IndusInd Bank, Vedanta, M&M Financial 

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