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Buying stocks during a dip, says Amar Nandu, research analyst, Samco Securities, can lead to higher compounding returns when the uptrend begins.
The sharp fall in stock markets since their September 2024 peak has made valuations attractive for a number of stocks in the large, mid, and smallcap segments, suggest analysts, who believe the time could be ripe for investors to start cherry picking from a long-term horizon.
According to a note by Samco Securities, in the recent downturn that began in September 2024-end, a total of 272 out of the top 500 market capitalisation (market-cap) stocks (54.40 per cent) have fallen over 20 per cent from their September-end levels as of February 21, 2025.
The price-earnings (PE) ratio for a bunch of stocks, they said, offers valuation comfort from a medium-to-long term perspective.
The Nifty 100 index, for example, is currently trading at a PE ratio of 20.6x as compared to 24.88x in September 2024-end, translating into a fall of 17.2 per cent during this period.
Purely by definition, the PE ratio is the ratio of a company's stock price to the company's earnings per share (EPS).
The ratio is used for valuing companies, and analysing whether they are overvalued or undervalued.
Buying stocks during a dip, said Amar Nandu, research analyst, Samco Securities, can lead to higher compounding returns when the uptrend begins.
That said, there is a risk of further decline, but for long-term investors, the current levels may offer strategic entry opportunities, Nandu said.
Within the large-cap 100 universe, stocks from Adani group -- Adani Green Energy and Adani Energy Solutions -- have witnessed a 63 per cent and 54 per cent fall in their PE ratio since the market crash that started in September 2024-end.
Bhel, Trent, ABB India, Gail India, Samvardhana Motherson International, Bharti Airtel and BPCL are some of the other large-cap stocks that have witnessed a sharp decline in their respective PE ratios during the current market fall, the Samco Securities note suggests.
The domestic market has already lost around Rs 85 trillion of equity wealth from its record high, said G Chokkalingam, founder and head of research at Equinomics Research, with Sensex's trailing PE at around 21x.
"Excluding Zomato, Sensex PE could be much lower. Small-and mid-cap indices have lost close to Rs 46 trillion in market-cap from their peak levels in September 2024. Such huge declines in the market-cap has made many quality stocks highly attractive. We think a lot of buying would emerge in such stocks given the significant dip in them," he said.
Hitachi Energy, ACC, Adani Wilmar and Godrej Properties from the midcap space, and Swan Energy, Whirlpool Of India, Inox Wind and Sonata Software from the small-cap basket are some of the stocks that have seen a significant drop in their respective PE ratios, the Samco Securities note suggests.
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Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Rajesh Alva/Rediff.com
