What are Undervalued Stocks?
If the price of a particular company’s stock is much lower than the expected rate for the sector, the stock can be considered undervalued. An undervalued stock suggests that the market price is somehow ‘incorrect’ and that the investor is making a contrarian, subjective assessment or has access to data that others do not have. There is no guarantee that an undervalued stock will increase in value. A stock’s intrinsic value can be only roughly calculated and is a type of speculation. Stocks may be undervalued for a variety of reasons, like the company’s unfamiliarity with the public, unfavorable headlines and media reports, and market meltdowns of a particular industry. The fundamental analysis makes the crucial premise that market pricing will eventually adjust to represent an asset’s true value, presenting possibilities for profit.
11 Most Undervalued Stocks in India to Buy Now
One can never predict how these undervalued stocks will perform. There is a certain risk in them but the reward is equally high. Let’s check out a list of undervalued stocks in NSE that you can invest in right now and expand your portfolio.
1. Globus Spirits
Since its inception in 1992, Globus Spirits Limited has focused on the production and distribution of IMIL, Bulk Alcohol hand sanitizer, IMFL, etc. It is the first company in India to establish a grain distillery and produce branded DDGS. It features a distinctive 3600 model that spans the whole value chain for alcoholic beverages. With the majority of profits going into reserves last year, the company has steadily grown ROE over the previous five years. The stock returned 559.99% over three years, compared to 67.31% for the Nifty Smallcap 100.
2. Ashoka Metcast
Tanya Estate Private Limited, the original name of Ashoka Metcast Limited, was formed on July 29, 2009. On July 20, 2017, the Company’s primary objectives were altered, and on September 13, 2017, the name of the Company was changed to ‘Ashoka Metcast Private Limited.’ Currently, the business trades and produces structural steel products such as TMT bars, angles, channels, MS bars, etc. Also recently, the business bought a 100% share in Shree Ghantakarna Rolling Mills Pvt. Ltd. The price of the stock is 0.47 times its book value. Since RoCE has improved during the previous two years, the company is successfully leveraging its capital to produce profits.
3. Hinduja Global Solutions
Business process management is one of the main businesses for Hinduja Global Solutions Ltd. (BPM). The business belongs to the Hinduja Group. It is a service company with its main office in Bangalore, India. This stock is among the most undervalued stocks India. It provides voice and non-voice-based services worldwide, including back-office transaction processing and call center solutions. The company outperformed its 5-year average of 47.51% by delivering a return on equity of 78.16%.
4. UPL Limited
Agrochemicals, industrial chemicals, specialty chemicals, and chemical intermediates are all produced and sold by UPL Limited, aka, United Phosphorus Limited. Established on May 29, 1969, United Phosphorus Limited, the firm, which has its headquarters in Mumbai, Maharashtra, operates in both agro and non-agro operations. One of the most undervalued stocks in NSE. They sell goods to more than 150 countries. The median sales increase for the company over the past ten years is 16.2%. The company has consistently paid out a hefty dividend of 24.5%.
5. ICICI Securities
As an integrated technology-based securities company ICICI Securities. provides a comprehensive variety of financial services, including retail and institutional broking, the distribution of financial products, PWN, and issuer and advisory services. It is a pioneer in the e-brokerage industry. The company is a major supplier of financial goods including Mutual Funds (MFs), National Pension Schemes (NPS), Sovereign Gold Bonds (SGBs), Exchange Traded Funds (ETFs), RBI bonds, REITs, etc. Only 2.36% of trading sessions over the past 4 years have had intraday drops greater than 5%. Revenue growth for the company exceeded its three-year CAGR of 25.51% by 32.96%. This stock is among the most undervalued stocks in NSE and BSE.
6. Castrol India
Manufacturing lubricants for both the automotive and industrial markets Castrol India Limited. With a 20% market share in the whole Indian lubricant market, Castrol India is the second-largest maker of automotive and industrial lubricants. It has 5 production facilities that are connected to 270 distributors and provide products to over 70,000 retail establishments. The company has enough cash on hand to cover its potential liabilities. On November 14, 2022, a 10-day moving crossover appeared. Within 7 days following this indication, prices have typically increased by 3.2% during the previous 5 years. The company beat its 3-year CAGR of 2.04% with a 38.63% increase in yearly sales. Also Read: 24 Best IT Penny Stocks India to Watch out for
7. Oil India Limited
A major public sector enterprise, Oil India Limited (OIL), is owned by the Indian government’s Ministry of Petroleum and Natural Gas. With its administrative center in Duliajan, Assam, the Ministry of Petroleum and Natural Gas is in charge of managing its activities. The company’s history includes the 1889 discovery of crude oil in India, which was second in the world and located in India’s far east. Exploration, development, and manufacture of crude oil and natural gas, as well as the logistics of crude oil and the manufacturing of liquid petroleum gas, are all activities carried out by OIL. The company outperformed its five-year average of 14.64% by delivering an ROE of 18.39%. On November 14, a 200-day moving crossover emerged. Within 30 days following this indication, prices have increased 7.76% on average over the previous five years.
8. Motilal Oswal Financial Services Limited
When Motilal Oswal Financial Services Limited was established in 1987, it was only a tiny sub-broking operation headed by two persons. They now provide a wide range of financial services Over 550 cities and towns are covered by the company’s network. Products and services like commission, income from financial services, income from dividends, income from brokerage & commission, other operating revenue, and rental income are offered by the firm. The company had QOQ sales increase of 74.49%, the greatest in the last 3 years.
9. Finolex Pipes
FIL was founded in 1981 and operates a PVC pipe manufacturing facility out of Pune, Maharashtra. They are the biggest and most reputable maker of PVC-U pipes and fittings for the plumbing-sanitation, agriculture, and construction industries in India. With the majority of profits going into reserves last year, the company has steadily grown ROE over the previous five years. We had to put them on this list of undervalued stocks in NSE.
10. GlaxoSmithKline Pharmaceuticals Ltd
It was established on November 13th, 1924, in India as H.J. Foster & Co. Limited, an agency house for marketing Glaxo, Joseph Nathan & Co. baby food. A subsidiary of GSK, GlaxoSmithKline Pharmaceuticals Ltd. is a pharmaceutical and healthcare corporation with research roots in India. The therapeutic categories covered by its prescription medications include dermatology, obstetrics, diabetes, cancer, cardiovascular disease, and respiratory illnesses. It also provides a variety of vaccinations for the protection of diseases including cervical cancer, hepatitis A, hepatitis B, chickenpox, etc. With these undervalued stocks India, the firm outdid the average of 28.96% by delivering an ROE of 63.64% by March 31, 2022. Compared to its 3-year CAGR of 1.24%, the company’s yearly revenue growth improved by 10.46%.
11. Zydus Lifesciences
Formerly known as Cadila Healthcare Limited, Zydus Lifesciences Limited is an Indian multinational pharmaceutical firm with its headquarters in Ahmedabad. Its primary business is the production of generic medications. In 2020, it was listed 100th on the Fortune India 500 list. Zydus continues to improve with an unwavering emphasis on addressing the unmet healthcare requirements to prove its corporate identity. The group had remarkable financial development from modest sales of Rs. 250 crores in 1995 to a turnover of over Rs. 14,253 crores in FY20. The company outperformed its five-year average of 19.2% by delivering an ROE of 26.39%. The business has cut its debt and has consistently paid out a hefty dividend of 17.6%.
Comparison Table
Given below we have simplified all these undervalued stocks in NSE for easy reference and comparison. Start analyzing and investing in the ones that suit you. Also Read: Top Multibagger Stocks in India
Why Stocks Become Undervalued?
After learning about undervalued stocks, you must be wondering why some stocks become undervalued stocks in NSE. Well, in general, there can be multiple reasons behind such a drop in value. Here are some of the crucial ones that you should know about:
Bad Reputation: Its share price may be impacted negatively by a poor reputation. Even if a firm has a track record of producing outstanding quarterly results, investors may nevertheless choose to disregard them because they believe the company is in peril. Ignored and Overlooked by Investors: Investors and analysts frequently fail to take into account a small business. They might be unaware that the stock is now selling below fair value. Media Reports: Let’s say that the government may investigate a company’s business operations in the future, according to media sources. In that event, the stock may see a sharp decrease. Stock prices for a corporation can also drop due to any significant fraud, mishap, or legal issues. Bad Management: Despite the promising future potential, poor management, poor leadership, and poor judgments might discourage investors from supporting a firm. Strong competition: Investors might occasionally become irked by intense competition. They may believe that there is a problem with the business as they are unable to cope and develop under industry pressure.
Who Should Buy Undervalued Stocks India?
Buying undervalued stocks in NSE is a wonderful strategy to boost your retirement account, create wealth or add to your retirement goals. Undervalued companies are good long-term investments, according to many expert investors. These stocks have the potential to offer outstanding returns compared to the market. One should invest in undervalued stocks if they are seeking ones that are trading at a discount or at prices that are undervalued. Therefore, one can say that, if you have a high risk appetite and enough patience to wait for the stocks to reach their fair value, then undervalued stocks India are for you. You can make a good profit, only if you are well aware of the market, can study trends, and can create a strategy for investment that will minimize risk in long term.
Features of Undervalued Stocks
A variety of factors are taken into account when an investor performs analysis and research to ascertain the intrinsic value of shares before deciding which shares they will buy or trade. Here are some of the features of undervalued stocks in NSE that one should keep in mind.
Diversification across Services and Products: Businesses with undervalued stock prices may have revolutionary goods and services, emerging markets, positioning, etc. Brands that have long been linked to a certain good or service can diversify over time. Despite these changes, the shares may still be valued at their current market price. This demonstrates that although the firm is undervalued, it has potential. Victim of Bad Economy: When a country’s macroeconomic conditions are unfavorable, the market in general suffers. Due to these unfavorable circumstances, the valuation of several stocks tends to decline. Occasionally, the market might fall as a result of investor behavior like overinvesting and herd mentality, therefore, devaluing several equities. Cyclical Products and Services: Shares of a company are valued according to its profits. Due to the seasonality of a company’s production and sales, they are frequently categorized as cyclical. Additionally, a cyclical pattern in the demand for its goods and services can be seen. Therefore, even if a company like this has solid fundamentals, its stock price will fall during a decline in sales before rising again when its earnings increase. Victim of Bad Media Attention: The value of a company’s stock always decreases when it finds itself in a circumstance that generates negative media attention. However, the momentary loss of share value is not always a sign that it will completely collapse. Traders must determine if a firm is resilient enough to weather a crisis after one of these occurrences, and if so, they may invest in its discounted stocks to increase future gains. Good Net Cash Flow: Companies are typically viewed as solid investments if they post high earnings. The cash flow that is still available after deductions for capital and operational costs is referred to as net cash flow. Even when a stock’s net cash flow is strong, its price can be cheaper than the others. However, if the business utilizes this money to grow operations and raise the value of its stock, it can end up being a good pick in the long term. Low P/E Ratio: A high P/E ratio indicates that the stock price will be higher than the earnings generated from it. On the other side, a low P/E indicates greater earnings relative to the share’s purchase price. To maximize their returns, value investors should be on the lookout for businesses with low P/E ratios, indicating undervalued stocks India. Low Debt: Regardless of whether you’re a value trader or not, low debt is undoubtedly a desired quality in equities. Value traders are generally reluctant to invest in power, steel, and infrastructure industries because of their pretty large debt loads. Undervalued stocks are frequently held by businesses that have little debt and consistent growth that is seen in their profitability. Future price increases for these equities are quite certain. High Dividend Yield: When a corporation does not have an additional opportunity to invest, it pays out large dividends. The company’s share price may decline as a result as it may concern some investors. But large dividends can also be an indication that the firm can withstand challenging market conditions due to a healthy cash flow.
Also Read: 27 Best Blue Chip Stocks in India to Buy Now
What is Value Investing?
Warren Buffett is a well-known example of a value investor. Benjamin Graham is the one who coined the term ‘value investing’. The underlying tenet of value investing is that investors should purchase shares of large, well-known firms that are fundamentally cheap and retain them for a considerable amount of time before selling them. Value investors center their choices on a company’s fundamental analysis. They will invest in stocks of reputable businesses that are now selling below their true value. Since the firm will ultimately expand and its stock price will rise, buying inexpensive stocks is cost-effective. Value investors choose to take advantage of opportunities to maximize returns. If you can buy undervalued stocks India at a discount, you can make a good profit when you sell them at their true worth.
Pros and Cons of Undervalued Stocks
Following are the pros and cons of investing in undervalued stocks India in the Indian market.
Pros
Assured Profits: the stocks which are undervalued tend to bounce back to their original pricing or intrinsic value in a certain time frame. Therefore, one can be assured that these stocks will return profits in the long run. Low Risk: the undervalued stocks fall in the low-risk category because these stocks even if undervalues tend to have the potential to return profits. The entire pricing factor is cyclical, which means one will have to only wait for the stocks to reach their intrinsic value. Affordable: at times, one may not afford to buy stocks from well-known companies due to their high prices. But, one can easily buy undervalued stocks as they are low in price at the moment and are from leading companies as well.
Cons
Need Patience: One needs to wait for the stocks to reach their intrinsic value. That means, it can take some time and if only one is planning to invest for the long term, undervalued stocks are a good pick for them. Difficult To Find: At times, finding undervalued stocks in NSE can be difficult for someone who is not that experienced with the share market and investments. One needs to study and understand the features of undervalued stocks before choosing any. Flawed Analysis: There is always a risk that your analysis gets skewed and flawed. Making a wager that the market as a whole is incorrect might backfire on anyone. A stock’s price has been set by the market, therefore it is a big and significant risk if you think that everybody is trading it incorrectly. Losses may result from a contradictory assessment made without the necessary information or abilities. Value Traps: Some cheap equities are trapped there indefinitely, declining further or never reaching their true value. An investor may find it frustrating to wait months or even years for the stock to pick up.
How to find Undervalued Stocks?
There are in general different ways to find undervalued stocks India. Now you can either choose one of these methods or can combine them for better decision-making in the end, by gathering more information. These methods are:
1. Self-Researching and Analyzing
This includes studying the current market trends, the current share price, what all factors are causing the undervaluation of the stocks, whether there is a chance that shares will increase in value, and what is the fair value of these stocks. Here are a few calculations and formulas that you should keep in mind while studying the fair price of the stocks and analyzing the stocks from a quantitative viewpoint. The current share price equals the undervalued price of the stocks. The present value of all the future cash flows that a firm will generate makes up the fair value of that company. Formula for Fair Value = Cash [1 + r (x/360)] – dividends
r= The broker’s prevailing interest rate. Cash = Current Value of the Stock x= The number of days remaining until the futures contract expires multiplied by the number of days Dividends= Amount of dividends a shareholder receives before the maturity date.
2. Finance and Stock Market Sites
You can look at various sites that offer monthly stock recommendations and under value share screener options. Combining these recommendations will provide you with both technical and fundamental research, and ‘what to purchase’ and ‘when to buy’. Any investor wanting to buy undervalued stocks will find this information valuable. Identifying undervalued sectors first, then choosing the top stocks inside each undervalued sector, is the best strategy for finding undervalued stocks.
3. Newsletters
You can sign up for monthly newsletters that provide professional stock recommendations and analysis to look for under the value share list. These newsletters offer thorough stock analyses and thoroughly sourced fair value estimates to investors. Also Read: 14 Fastest Growing Stocks in India
How to Buy Undervalued Stocks?
You can speculate on share prices by trading, or you can purchase equities altogether by investing. Through leveraged derivatives, namely CFDs or Contract for Differences, you can trade undervalued stocks. You won’t acquire any shares, but you can make predictions about growing or even declining share values. Because your gains and losses are determined by the whole amount of your position, not just the deposit needed to open it, trading on leverage increases your risk. Otherwise, you can directly buy the shares from the stock exchanges through brokers. This is low risk as compared to trading CFDs. Always take the necessary precautions to reduce your risk before investing money. Anyone can invest in value. To succeed as a value investor, you don’t need a degree or hardcore understanding of economics. But you should be prepared to conduct in-depth research to find the most undervalued stocks India. Investing in these undervalued stocks in NSE means avoiding short-term swings and focusing on long-term gains. Nevertheless, buying inexpensive stocks has some dangers. We advise you to speak with a financial expert before investing in such stocks.
