List of Low PE Ratio Stocks in India 2024

A low PE ratio suggests a stock is priced low relative to earnings, often viewed as undervalued and potentially offering a good investment opportunity.
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List of Low PE Ratio Stocks in India 2024
OPEN ACCOUNT
3 mins read
18-December-2024

A low PE ratio means a stock’s price is low compared to its earnings, often making it seem undervalued. Investing in such stocks can help you find companies with growth potential and the chance for higher returns over time. Low PE ratio stocks may also provide a safety cushion during tough market conditions.

List of the low PE ratio stocks in India (2024)

Name

Market cap (in Rs.)

Tata Steel Ltd

1,81,016.40 crore

Oil and Natural Gas Corporation Ltd

3,18,281.10 crore

Coal India Ltd

2,55,167.80 crore

Tata Motors Ltd

2,61,245.90 crore

IndusInd Bank Ltd

81,104.83 crore

Axis Bank Ltd

3,57,471.20 crore

Shriram Finance Ltd

1,10,152.40 crore

Canara Bank ltd

19703.27 crore

Indian Oil Corporation Ltd

195703.4 crore

Bank of Baroda Ltd

135065.60 crore

Power Finance Corporation Ltd

167793.70 crore

Bharat Petroleum Corporation Ltd

65,167.60 crore

State Bank of India

7,21,777.90 crore

Hindalco Industries Ltd

1,40,103.50 crore


Disclaimer: The market capitalisation values mentioned above were fetched on 13th November 2024. These values are subject to change based on various factors such as market conditions, company performance, and economic trends. Please refer to the SEBI or stock exchanges' websites to obtain the most current market capitalisation for any particular stock.

Overview of Low PE Ratio Stocks

Low PE stocks are often considered favourable for investments. They offer value for money to investors and help them maximise their portfolio returns. Let’s see some good PE ratio stocks for value investing:

1. Oil and Natural Gas Corporation Ltd.

  • Oil and Natural Gas Corporation Ltd (ONGC) is a large-cap company operating in the Oil Drilling and Exploration sector.
  • The company is headquartered in Dehradun, India, and was founded on 14 August 1956.
  • It has a significant presence in the Indian domestic production of:
    • Crude oil and
    • Natural gas
    • ONGC sells products to oil refining and gas marketing companies.

2. State Bank of India

  • State Bank of India (SBI) is a Mumbai-headquartered Indian multinational public sector bank.
  • It is the largest Indian bank with a significant market share.
  • Additionally, SBI has expanded its business operations through various subsidiaries, including
    • SBI General Insurance
    • SBI Life Insurance
    • SBI Mutual Fund, and
    • SBI Card.
  • The bank has a rich heritage of over 200 years and is considered the most trusted bank in India.

3. UPL Ltd.

  • United Phosphorus Limited (UPL) is an Indian multinational corporation.
  • It is engaged in the manufacturing and marketing of a diverse range of products including:
    • Agrochemicals
    • Industrial chemicals
    • Chemical intermediates, and
    • Specialty chemicals.
  • The company is headquartered in Mumbai and sells products in over 150 countries.

4. Hindalco Industries Ltd.

  • Hindalco Industries Limited is an Indian company specialising in the manufacturing of aluminium and copper products.
  • The company operates globally and is even listed on the Luxembourg Stock Exchange for its Global depository receipts.
  • It is headquartered in Mumbai and is a subsidiary of the Aditya Birla Group.
  • Hindalco Industries Limited is a major player in the metals industry, producing primary aluminium and copper products.
  • The company also gained recognition as the world's most sustainable aluminium company by the Dow Jones Sustainability Indices in 2020 and 2021.

5. Power Grid Corporation of India Ltd.

  • The Power Grid Corporation of India Ltd. operates as a central public sector entity, falling under the ownership of the Indian government's Ministry of Power.
  • It is primarily engaged in the transmission of bulk power across different states of India,
  • The company was incorporated on October 23, 1989, and transmits approximately 50% of the total power generated in India through its extensive transmission network.

Note: It is crucial that you do your due diligence before investing to understand the market risks.

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What is a PE ratio?

To pick low PE stocks, it is important to first understand the meaning of PE. The price-to-earnings (P/E) ratio is a financial metric. It is widely used by investors to evaluate the valuation of a company's stock by comparing its:

  • The current market price to
  • Earnings per share (EPS)

The PE ratio is always calculated in “times” and is calculated using the formula:

For example:

Say the current market price of a listed company is Rs. 150, whereas its EPS is Rs. 25. The PE ratio of this company would be 6 times (Rs. 150 / Rs 25). It implies that investors are willing to pay six times the company's annual earnings to buy each share.

How is the PE ratio used in stock investing?

PE ratio indicates whether a stock is:

  • Overvalued
  • Undervalued, or
  • Fairly valued

See the table below to understand how this assessment is made:

Overvalued Undervalued Fairly valued or low PE stocks
An overvalued stock has a high P/E ratio compared to its peers or historical averages. Undervalued stocks have low P/E ratios relative to their peers or historical averages. A fairly valued stock has a P/E ratio in line with industry norms or historical averages.

 

Why invest in low PE ratio stocks?

Low P/E ratio stocks represent undervalued assets and are favoured by value investors. It indicates that:

  • The stock is trading at a discount relative to its earnings potential
  • Investors have an opportunity to buy quality companies at a lower price\

Investors who hold positions in low PE stocks often benefit when:

  • The market recognises the undervaluation and
  • Revalues the stock upwards

This helps in capitalising on capital appreciation as the stock price increases to reflect its true value and generates higher returns.

Furthermore, some low P/E ratio stocks offer attractive dividend yields. Companies with stable earnings and strong cash flows choose to return capital to shareholders in the form of dividends. Thus, investing in these stocks not only provides the potential for capital appreciation but also offers regular income through dividends.

Strategies for identifying low PE ratio stocks

1. Use stock screeners

Stock screeners are online tools that allow investors to efficiently filter and identify stocks based on specific criteria, such as the price-to-earnings (PE) ratio. By applying filters, investors can quickly find shares with low PE ratios, enabling them to discover opportunities like undervalued stocks with potential for growth. These tools streamline the process of locating low PE, high-growth stocks or shares with attractive valuations.

2. Analyse company financial statements

A thorough review of a company's financial documents—such as the balance sheet and income statement—can provide insights into its earnings and current valuation. By manually calculating the PE ratio, investors can identify companies trading at a lower valuation relative to their earnings, highlighting potential opportunities among low PE ratio stocks.

3. Look for undervalued stocks

Fundamental analysis and valuation techniques can help uncover undervalued stocks with low PE ratios. Investors should evaluate intrinsic values, earnings potential, and other metrics to determine if such stocks are priced below their true worth. This approach is particularly valuable in markets like India, where low PE stocks may be overlooked or undervalued.

4. Consider investing in index funds or ETFs

For investors seeking diversified exposure to low PE ratio stocks, index funds and Exchange-Traded Funds (ETFs) are an effective option. Certain ETFs track indices like the Nifty Low Volatility 50 Index, which includes low-volatility stocks with reasonable PE ratios. These funds often incorporate public sector undertaking (PSU) stocks, offering access to stable and undervalued investments with lower PE ratios.

While these strategies are useful, investors must undertake thorough research or consult a financial advisor to make informed investment decisions.

Features of low PE stocks in India

1. Value proposition

Low PE ratio stocks generally indicate companies trading at a lower valuation compared to their earnings, offering an attractive opportunity for value investors. Such stocks may represent assets that are undervalued relative to their intrinsic worth, particularly for those looking for low PE, high-growth investments.

2. Risk and volatility

While low PE ratio stocks can offer significant opportunities, they may also carry higher risk and price volatility. Investors should assess their risk tolerance and evaluate the likelihood of price fluctuations before committing to such stocks.

3. Market sentiment and perception

A low PE ratio can reflect prevailing market sentiment or challenges faced by a company. Understanding the underlying reasons, such as temporary setbacks, sector dynamics, or market trends, is critical for determining whether the stock is genuinely undervalued or signals deeper issues.

4. Dividend yields

Some low PE ratio stocks provide attractive dividend yields, making them appealing to income-focused investors. Evaluating a company's dividend history and policies can help determine whether these stocks align with income-generating investment goals.

5. Sector dynamics

The nature of low PE ratio stocks often varies by sector. For instance, certain industries may consistently exhibit lower PE ratios due to their growth trajectories or market conditions. Assessing broader economic and industry trends is essential for understanding and contextualising the significance of a low PE ratio within a specific sector.

By recognising these features, investors can better evaluate opportunities presented by low PE ratio stocks while aligning their decisions with financial goals and risk preferences.

Conclusion

Profit-to-equity (PE) ratio is the relationship between the current market price of the share and its earnings per share (EPS). Low PE stocks are often considered attractive investments as they offer capital appreciation opportunities to investors. Some popular low PE stocks in India are Oil and Natural Gas Corporation Ltd., Coal India Ltd., State Bank of India, UPL Ltd., Hindalco Industries Ltd., and Power Grid Corporation of India Ltd.

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Frequently asked questions

Is a low PE good for making stock investments?
A low P/E ratio indicates undervaluation and offers potential for capital appreciation. It shows that investors can buy quality stocks that are currently available at low prices.
What is the best PE for stocks?
There is no single best PE. Investors must compare the PE of the stock they are analysing with that of the industry and assess whether the stock is fairly valued.
How to calculate PE?

The Price-to-Earnings (PE) ratio is determined by dividing the market price of a share by its earnings per share (EPS).

How can I invest in low PE stocks?

To invest in low P/E (Price-to-Earnings) stocks, start by identifying companies with a lower P/E ratio, as these may be undervalued and have growth potential. However, it is essential to thoroughly research and analyse these stocks to ensure that the low P/E ratio does not signal hidden issues within the company. Carefully examining factors like financial health, industry conditions, and market trends can help you make informed decisions.

Is it a good time to invest in low PE stocks?

A low P/E ratio can present attractive investment opportunities as it reflects a lower share price relative to earnings, which may appeal to value-seeking investors. However, it's wise to stay informed about current market conditions and broader economic trends before investing in low P/E stocks, as timing can impact returns.

Can low PE stocks be profitable for investors?

Low P/E stocks are often considered defensive, offering lower risk and potentially stable returns, especially during periods of market volatility. These stocks can be profitable, but investors should conduct thorough research or seek advice from a financial advisor to confirm that their choice aligns with their financial goals and risk tolerance.

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