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7 Nifty Stocks That Are The Most Expensive Right Now, Buy With Caution
There are various parameters that are used while evaluating stocks. One of them is the price to earnings multiple which is the favorite and the most common. Higher the p/e multiple, higher is the valuation of a stock.
Why are p/e multiples different for many stocks?
There maybe 2 cement company stocks that are available. Company A could have a p/e multiple of 20 times one year forward earnings and the other Company B could have a p/e multiple of 10 times. In terms of p/e multiples company B is cheaper, does that make it better. Not always. Markets factor in future growth, promoter holding, promoter background, debt profile and a host of other things.
However, at most times all things being normal, companies that are horribly expensive in terms of p/e are best avoided unless they are growing at a scorching pace. One of the ways to look at them is the average p/e of the last 10 years and the p/e now. If it is at a hefty premium the company stocks are best avoided.
Nifty stocks trading at a hefty premium to long-term averages
| 10-year average p/e | Current p/e | premium | |
|---|---|---|---|
| HCL Technologies | 11.3 | 20.9 | 85.00% |
| Titan Co | 50.1 | 85.1 | 70.00% |
| Reliance Inds | 15 | 23.2 | 55.00% |
| Infosys | 17.5 | 28 | 60.00% |
| TCS | 19.8 | 30.4 | 54.00% |
| Wipro | 15.4 | 26.2 | 71.00% |
| Tech Mahindra | 13.6 | 21.6 | 59.00% |
(Courtesy: Motilal Oswal, Bulls and Bears Report)
A lot of stocks from the IT sector
IT sector stocks have been in the limelight as the pace of growth and expectations have turned robust. We believe that the valuations are stretched. However, for the markets right now there is plenty of liquidity that is flowing into mutual funds and that is finding its way into stocks making them even more expensive. Globally, stocks are on fire and it seems unless interest rates rise, we may see premium valuations for stocks continuing.
As far as Reliance Industries is concerned the valuations deserve a premium on account of the robust growth that is likely for the growth that is expected. However, for Titan we believe the valuations are overstretched. There is another company which is not on the list above Divis Labs where the premium is hefty 51% and we believe that the valuations for the company is far fetched.
Markets remain slave to liquidity
It is often said that markets are a slave to liquidity and no matter what liquidity will drive stocks and valuations go for a toss. It is the same thing right now. Liquidity is driving stocks to dizzy heights and the trend is unlikely to change. For investors it is time to be cautious, though markets can stay irrational for a long spell of time.
We suggest that individuals can look at some other companies where there is regular dividends and the prices have gone near 52 week lows. We have done an analysis of stocks at 52week low, which investors could read.
Disclaimer
Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies and the author, are not liable for any losses caused as a result of decisions based on the article.
