Nifty Valuation Reset Creates Buying Window As 54% Of Top Stocks Trade Below 2023 PE Levels

More than half of Nifty 50 stocks are trading at lower valuation multiples today than they were in 2023. About 54% of index constituents now trade at lower 12-month forward price-to-earnings (PE) ratios than two years ago, even as headline index levels mask the scale of the underlying correction.

The Nifty has slid 10% from its 52-week high, weighed down by the West Asia conflict, rising crude prices, and pressure on corporate earnings.

How Far Valuations Have Fallen

The Nifty is currently trading at 16.5x one-year forward earnings, representing a 13.6% discount to its 15-year average PE of 19.1x and an 18.7% discount to its 10-year average of 20.3x.

Some of the sharpest de-ratings have been in technology. Tata Consultancy Services (TCS) has seen its forward PE nearly halved to 14x from 27.5x. Infosys has dropped to 15.4x from 25.2x, and Wipro has come down to 14.4x from 20.3x. Reliance Industries has pulled back to 19.6x from 31.4x. Adani Enterprises has fallen to 70.3x from 112.1x. Hindustan Unilever has softened to 44.1x from 57.2x.

Not every stock has corrected though. Bharat Electronics has actually become more expensive, with its PE climbing to 41.1x from 19.7x. Bajaj Auto has moved up to 25.1x from 15.6x.

Why Earnings Growth Has Slowed

The PE compression reflects a genuine slowdown in earnings momentum. The extraordinary corporate earnings growth of 18% CAGR seen between FY19 and FY24 is expected to normalise to around 9.5% over FY24 to FY27.

Nifty free-float earnings per share grew by just 1.6% in FY26. EPS estimates for FY27 and FY28 have seen marginal downward revisions of 0.9% and 0.8% respectively, though the projected EPS CAGR of 15.9% over FY26 to FY28 still points to a recovery path.

Macro headwinds are adding to the uncertainty. Commodity price rises, fuel price hikes and a possible El Nino event pressuring the rural economy are among the risks flagged by analysts. The oil and gas sector, particularly oil marketing companies, is seen as a specific downside risk to overall earnings if the West Asia conflict worsens. RBI's approach to interest rates in this inflationary environment is being closely watched.

What About FII Selling?

Foreign institutional investors (FIIs) have been heavy sellers, but domestic fund managers argue this should not drive the entire market narrative. According to experts, FII selling has been going on for years without valuations collapsing, which itself signals underlying strength. The view is that domestic markets could recover before foreign capital returns, and that even a slight improvement in earnings visibility could prompt FIIs to re-engage. Right now, elevated oil costs are clouding that visibility.

Also Read - New WPI Series Shows India Wholesale Inflation At 9.68% In May

Where Experts Are Putting Money

With the index correction creating an estimated 10 to 15% upside room from current levels, institutional investors are recalibrating their portfolios. Brokerages are positive on financials, industrials, power, real estate, chemicals and consumer discretionary, while staying cautious on energy, cement and telecom.

The broad message from institutional investors is to use the current period as an accumulation window rather than treating it as a crisis. According to experts, the sentiment has shifted from extreme euphoria to extreme pessimism, and historically that is when better prices appear. The advice being given is to accumulate now, with the expectation that returns compound more meaningfully in the years that follow.

Source:

Economic Times