RIL, Adani Ports, Divis Labs, TechM, Bajaj Auto: Half of Nifty shares trade at huge premium; stock picks

Over half of Nifty stocks including Grasim Industries Ltd, Tech Mahindra Ltd, Adani Ports, Divis Labs, Bajaj Auto Ltd and Reliance Industries Ltd (RIL) are trading at huge premiums over their historical PE averages, data showed. Others included HCL Technologies, SBI Life, Tata Consumer Products Ltd, Britannia Industries and ITC, LTIMindtree, Hindalco, Titan Company and Wipro.  

The narrow market indices may appear fair from the perspective of historical multiples and bond yields, but most of the non-financial Nifty-50 constituents currently trade at expensive multiples, relative to their own history, said Kotak Institutional Equities. 

"The extent of ‘richness’ in multiples is accentuated in broader markets,  across most buckets of consumption, investment and outsourcing, with  financials being the only exception. Narrative  stocks continue to trade at ‘frothy’ valuations, despite the recent correction in some of them," it said.

The brokerage said even its conservative Nifty estimates may have downside risks, as exports and commodity-oriented sectors may contribute to 35 per cent of Nifty FY25 net profits. 

Grasim at a PE of 27.5 is trading 96 per cent premium over its 10-year average PE of 14, as per data compiled by MOFSL. On this parameter, TechM is trading 80 per cent higher than its trailing 10-year PE of 16.9 times. Adani Ports at 30.5 times is trading 63 per cent premium over its historical average of 18.7 times. Divis Labs traded at 63 per cent premium, Bajaj Auto 58 per cent, HCL Tech 56 per cent and RIL 54 per cent premium.  

Tata Consumer commanded a premium of 43 per cent, Larsen & Toubro 41 per cent, M&M 40 per cent, SBI Life 38 per cent, LTIMindtree 36 per cent, Infosys 35 per cent, and TCS and Wipro 29 per cent each. 

The June quarter earnings have been in line with expectations so far, with heavyweights such as HDFC Bank, Tata Motors, ICICI Bank, Maruti Suzuki, and TCS driving the aggregate. That said the growth has primarily been led by the BFSI and Automobile sectors, MOFSL said. Earnings of the 39 Nifty companies that have declared results so far grew 5 per cent YoY, it noted

Valuations for Nifty remain near its LPA at 21 times one-year forward earnings, MOFSL said as it picks ICICI Bank, SBI, L&T, M&M, HCL Tech, Coal India, Titan, Mankind Pharma, Hindustan Unilever and Hindalco as its largecap picks. 

Indian Hotels, Ashok Leyland, Godrej Properties, KEI Industries, PNB Housing, Cello World, Kalyan Jewelers, Persistent Systems, Angel One and Metro Brands are among mid and smallcap stocks the it likes.