202 BSE 500 stocks trade below five-year average valuations

ET Intelligence Group: Over half of the 375 companies from the BSE 500 index - 202 to be precise - are now trading below their five-year average valuations, reflecting weak market sentiment. In addition, nearly two out of every three BSE 500 companies have failed to earn returns over the past two years, closely following the trajectory of the BSE Sensex which has not been able to sustain the peaks created during the period. The benchmark has retreated nearly 16% from the peak of 86,159 hit in early last December.

Of the 500 companies in the BSE 500 index, 125 have been either freshly listed or relisted due to corporate restructuring over the past five years. They therefore do not have a five-year average valuation data, thus, leaving 375 companies for analysing long-term valuations.

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Over the past few quarters, geopolitical uncertainties in West Asia have resulted in highly volatile energy prices thereby raising logistics and commodity costs, and affecting the global demand for goods and services. Since India is a net energy importer, it is susceptible to the current turmoil in the region.

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Moreover, the sample includes companies that have failed to earn returns over the past two years despite reporting earnings improvement in each of the two fiscal years. Over 26% or 97 companies fall in this category.

Of the 314 non-banking and finance (non-lenders) companies from the sample, 177 or 56% currently trade below their five-year price-earnings multiples. Their banking and finance counterparts have fared a little better with less than half - 25 lenders or 41% of the total 61 - trading below the five-year average price-book multiples.
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