As the domestic stock market continues to gain momentum, Nifty stocks including Reliance Industries Ltd (RIL), Adani Ports & Special Economic Zone Ltd (Adani Ports Ltd), Tech Mahindra Ltd (TechM Ltd), Grasim Industries Ltd. At least half of the constituent stocks trade at a premium significantly above the average 10-year PE multiple.
Cement maker Grasim Industries had a P/E ratio of 22.5 times as of the end of January, trading at a 67% premium to its 10-year average P/E ratio of 13.5 times. Reliance Industries, a major oil and communications company, has a forward P/E ratio of 24.3 times, representing a 62% premium to its issue price. Two IT stocks, Tech Mahindra and HCL Technologies, traded at a premium of 59% and 50%, respectively. Adani group company Adani Ports also traded at a 47% premium to its historical valuation.
Grasim Industries is scheduled to report its December quarter results on Thursday. ICICI Securities expects the cement maker to post a 2 per cent rise in profit to Rs 6,323.6 crore in the December quarter, but profit will decline 36 per cent year-on-year to Rs 1,645 crore. The brokerage firm has rated the stock as ‘buy’ and has a price target of 2,332 rupees.
In the case of RIL, several brokerages have indicated in their quarterly results announcements that they have set a target price in the range of Rs 2,900-3,200. Antique Stock Broking said the current phase of capital investment could be the last in a decade in the O2C and communications sectors, delivering significant cash flow in the second half of the year.
“Telecom and retail are likely to drive earnings over the next two years. RIL has announced the launch of a new energy plant by the end of this year, clearing the possibility of announcing the next phase of investment,” it said. , RIL’s target amount is Rs 3,005 crore.
Kotak expects HCL Tech to grow above industry levels in the coming years on the back of increasing mega deals. TechM is seen as an outlier, with profits expected to expand by 510 basis points in the future due to the large decline in FY2024. NetNet and major IT companies performed poorly, but in line with expectations.
Analysts are positive on Adani Ports’ results following Q3 results. “Our expectations are raised 3-5% to reflect improved Q3 FY24 results and outlook. We value APSEZ at 16x EV/EBITDA (with optimism on growth outlook) (To reflect this view, we have added a 10% premium to 14.5 times the three-year median). Rs 1,430 crore will be carried over to March 2025,” JM Financial said.
Bajaj Auto was trading at a 43% premium to its historical value, Tata Consumer 40%, Divis Labs 39%, Wipro 22% and Nestlé India 21%.
On the other hand, Nifty’s valuation is close to its historical average. Currently, his 12-month forward return on equity for Nifty is 16.1%, which is above the long-term average. On the other hand, Nifty’s 12-month forward P/E ratio is 19.7x, which is close to LPA’s 20.3x. On a trailing basis, Nifty is 23x, close to LPA’s 22.2x.
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