Are India's Most Undervalued Large-Cap Stocks Poised for a Turnaround?

'Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria'. - John Templeton

Over the past year, Indian large-cap stocks have faced significant challenges, leading to underperformance compared to global peers.

As of 27 February 2025, the Nifty 50 index has declined approximately 14% from its peak in September 2024, marking its most prolonged losing streak since 1996.

This downturn is attributed to high inflation, stagnant incomes, and a substantial US$ 25 billion (bn) sell-off by foreign investors, positioning the Indian stock market as one of Asia's weakest performers.

In such market conditions, investors are constantly on the lookout for undervalued opportunities that offer both stability and growth potential.

Large-cap stocks with low price-to-earnings (PE) ratios are often companies that are fundamentally strong but temporarily overlooked by the market.

These stocks not only provide resilience during market fluctuations but also have the potential for significant upside as valuations normalize.

Hence, let's look at the top 5 low PE large-cap stocks selected from Equitymaster's screener for Low PE Stocks in India.

These are not stock recommendations. Investors should do their own research and do due diligence before considering any investment in the stock market.

Also, investors should pay close attention to corporate governance while performing their due diligence.

So, let's examine the top 5 low PE large-cap stocks and what the future holds in store...

#1 Power Finance Corporation

First on this list is Power Finance Corporation.

Power Finance Corporation is a systemically important non-deposit taking NBFC registered with the RBI as an infrastructure finance company.

It is engaged in extending financial assistance to the Indian power sector.

PFC's shares are trading at a PE multiple of 5.6 compared to its 1, 3 and 5-year average of 7.5, 4.3, and 3.1, respectively.

The company's revenue has grown at a compounded average growth rate (CAGR) of 9.9% in the last five years while its net profit has grown at a CAGR of 15.6%.

The company's return on equity (RoE) and return on capital employed (RoCE) were 17.2% and 9.3%, respectively.

The company recorded standalone net profit for 9M FY25 of Rs 122.4 bn, up 20% year-on-year (YoY).

The consolidated loan asset book reached Rs 10,694.4 bn, marking a 12% YoY growth.

PFC declared an interim dividend of Rs 3.5 per share, totaling Rs 10.3 for FY25.

The company's consolidated gross NPA (non-performing assets) improved to 2.3% for 9MFY25, with net NPA at 0.7%.

PFC disbursed Rs 341.5 bn this quarter with cumulative disbursement for 9M FY25 at Rs 1,003 bn, up 10.2%.

The company's disbursement typically ramps up in Q4. Thus, the management has guided for similar growth levels as last financial year.

PFC will be focusing on distribution and renewable sectors for future disbursements.

Despite challenges in conventional generation and state utilities, the company's management remains optimistic about growth.

It expects 12-13% AUM (assets under management) growth for FY25 and FY26.

To know more, check out Power Finance Corporation's financial factsheet and latest quarterly results.

#2 Bank of Baroda

Second on this list is Bank of Baroda.

Bank of Baroda is engaged in providing personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services, and treasury services.

The bank is among India's top five banks by asset size and total deposits with a 6% market share as of FY24.

Bank of Baroda's shares are trading at a PE multiple of 5.1 compared to its 1, 3 and 5-year average of 6.7, 6.9, and 7.7, respectively.

Coming to the financials, the company's revenue has grown at a CAGR of 17.7% in the last five years while its net profit has grown at a CAGR of 110.2%.

The company's five-year average RoE and RoCE were 8.7% and 9.2%, respectively.

Bank's CASA (Current Account Savings Account) ratio increased 6.5% YoY to around 40%.

The gross NPA improved to 2.4%, whereas net NPA reduced from 0.7% to 0.6%.

The net interest margin (NIM) decreased from 3.1% to 3% due to rising deposit costs (4.9% to 5.1%).

The bank's management has given an operating margin guidance of 3-3.1%, with a bias towards the upper end. It anticipates potential upside due to liquidity measures and possible rate cuts.

The bank's management appears optimistic about the future, focusing on sustainable growth, maintaining asset quality, and leveraging digital advancements to enhance customer experience while navigating current market challenges.

To know more, check out Bank of Baroda's financial factsheet and latest quarterly results.

#3 Union Bank of India

Next on this list is Union Bank.

Union Bank is engaged in banking services, government business, merchant banking, agency business insurance, mutual funds, wealth management etc.

As of FY24, the bank's market share in deposits and net advances is around 6% and 5.5%, respectively, thereby making it the fifth-largest public sector bank.

Union Bank's shares are trading at a PE multiple of 5.3 compared to its 1, 3 and 5-year average of 6.5, 6.3, and 6.6, respectively.

Coming to Union Bank's financials, the company's revenue has grown at a CAGR of 24% in the last five years while its net profit has grown at a CAGR of 141.3%.

The company's five-year average RoE and RoCE were 6.6% and 9.3%, respectively.

In Q3 FY25, the bank's net profit reached Rs 46 bn, up 28.2% YoY.

The gross NPA improved to 3.9%, whereas the net NPA improved to 0.8%.

The bank's average deposits and advances grew 7.6% YoY and 10.9% YoY, respectively.

The management anticipates achieving growth closer to the lower end of guidance for deposits (9-11%) and advances (11-13%).

Additionally, the bank's management has consciously shed high-cost bulk deposits to improve CASA ratios and ensure NIM are not impacted. The strategy prioritises profitability and operational efficiency over aggressive growth.

Going forward, the bank is optimistic about achieving the annual recovery target of Rs 160 bn, having already recovered Rs 108 bn.

Additionally, the management highlighted a strong pipeline of Rs 750 bn in sanctioned loans, with Rs 360 bn pending for disbursement.

To know more, check out Union Bank's financial factsheet and latest quarterly results.

#4 REC

Fourth is REC.

REC is a central public sector undertaking under the ministry of power involved in financing projects in the complete power sector value chain from generation to distribution.

REC's shares are trading at a PE multiple of 6.2 compared to its 1, 3 and 5-year average of 9.5, 5.4, and 3.7, respectively.

The company's revenue has grown at a CAGR of 13.3% in the last five years while its net profit has grown at a CAGR of 19.5%.

The company's five-year average RoE and RoCE were 20% and 9.2%, respectively.

The company recorded its highest ever disbursement in Q3 FY25 at Rs 546.9 bn.

REC's loan assets/AUM grew by 14% in Q3 FY25, with expectations of 15-17% growth in Q4.

Going forward, the company is targeting an AUM of Rs 10,000 bn by the end of 2030.

Significant growth was observed in renewable energy project disbursements, up 79% in 9M FY25 whereas the non-power infrastructure and logistics disbursements grew 30%.

REC sanctioned Rs 2,718.1 bn worth of projects in 9 months, including Rs 791.4 bn for renewable projects.

The company's outstanding loan book stands at Rs 5,656 bn as of 31 December 2024, up 14% YoY.

REC's cost of funds, reduced to 7.2%, while the spread increased to 2.9%.

The NIM improved to 3.6%.

Additionally, the gross NPA reduced to 2%, while net NPA decreased to 0.7%.

The company declared its third interim dividend of Rs 4.3 per share, totaling Rs 11.8 per share for the financial year.

REC's management is targeting to increase private sector exposure to 30% by 2030, primarily through renewable energy projects.

Additionally, the management is optimistic about maintaining NIMs at 3.6-3.7% in the coming years.

To know more, check out REC's financial factsheet and latest quarterly results.

#5 Coal India Ltd (CIL)

Next on this list is Coal India.

Coal India is mainly engaged in mining and production of coal and operates coal washeries.

The major consumers of the company are power and steel sectors. Consumers from other sectors include cement, fertilizers, brick kilns etc.

CIL is the single largest coal producing company in the world and one of the largest corporate employers.

The company leads the country's coal production contributing to around 80% of the nation's entire coal output. Its supplies to the power sector exceed 80% of its entire dispatch.

CIL's share price is trading at a PE multiple of 6.7 compared to its 1, 3 and 5-year average of 7.7, 6.5, and 6.5, respectively.

Coming to the financials, the company's revenue has grown at a CAGR of 11.1% in the last five years while its net profit has grown at a CAGR of 8.5%.

The company's five-year average RoE and RoCE were 73.7% and 74.7%, respectively.

Its debt-to-equity ratio was as low as 0.1 on 31 March 2024.

For 9M FY25, the company reported production of 543.4 MT, up 2% from 531.9 MT during 9M FY24.

Aligning with global sustainability trends, CIL plans to install 5,570 MW (megawatt) of renewable energy capacity by 2030.

As of May 2023, CIL has already installed 11 MW of rooftop solar power and is committed to becoming a net zero energy company. The company is implementing a 3 GW (gigawatt) solar power program, with significant additional capacity planned over the next few years.

It aims to achieve a coal production target of 1 BT (billion tonnes) by FY25-26.

To facilitate efficient and eco-friendly coal transportation, CIL has initiated 17 new First Mile Connectivity (FMC) projects under Phase III, with an estimated investment of Rs 110 bn. These projects are designed to enhance the loading capacity by 317 million tonnes per annum (MTPA).

To know more, check out Coal India's financial factsheet and latest quarterly results.

Snapshot of Low P/E Large-cap Stocks on Equitymaster Stock Screener

Here's a table that shows the low P/E large-cap stocks across various parameters.

Conclusion

In the current market environment, low PE large-cap stocks in India present a unique opportunity for investors seeking value and stability.

While these stocks may be trading at discounted valuations, their strong fundamentals and growth potential make them worthy of attention.

However, investors should consider other factors such as earnings growth, industry trends, and overall market conditions before making investment decisions.

By carefully selecting fundamentally sound companies with attractive valuations, investors can position themselves to benefit from potential re-ratings and long-term wealth creation in the Indian stock market.

Additionally, conducting due diligence on these companies and including corporate governance as a key criterion in your selection process is essential.

At the same time, assess your financial goals, risk tolerance, and investment horizon before making investment decisions.

Happy Investing.

Disclaimer: This article is for educational purposes only. It is not a recommendation and should not be treated as such. Learn more about our recommendation services here...