Top 5 undervalued Nifty50 stocks to keep in your watchlist

They simplify our understanding of market direction and economic conditions.

They also enable the creation of diversified products like index funds and ETFs, offering broad market exposure.

Stocks included in the indices are selected based on market capitalisation, liquidity, and financial stability.

These companies must have significant market value, high trading volumes, and strong financials. Indices represent various sectors and are periodically rebalanced to stay current.

Given this scrutiny, adding index stocks to your watchlist can be a smart move.

Today, we’ll look at five undervalued Nifty 50 stocks worth considering.

#1 IndusInd Bank

The mid-sized bank caters to the retail and corporate sectors. In retail, it has a significant presence in auto loans and microfinance.

IndusInd Bank reported net advances at ₹3.5 trillion for the quarter ended 30 June 2024, up 16% YoY from ₹3 trillion in the corresponding quarter of the last financial year.

Deposits grew 15% YoY to ₹4.0 trillion in the reporting quarter, up from ₹3.5 trillion in the year-ago period.

Sequentially, net advances grew 1% to ₹3.4 trillion from the March-ended quarter, while deposits were up 4% QoQ from ₹3.8 trillion, indicating consistent deposit growth.

The CASA ratio in the June-ended quarter stood at 36.7%, down from 39.9% in Q1FY24 and 37.9% in Q4FY24.

The bank's net profit has grown at a CAGR of 22% over the last five years, with an RoE of 16.4%.

IndusInd Bank continued to invest in its distribution network, opening 378 branches during FY24 and 1,073 branches over the last four years.

Going forward, the bank is focusing on secured loan segments and expanding into new sub-segments, including home loans, tractor loans, and merchant acquisition, as key growth avenues.

The company's current PE ratio is 11.7x, which is higher than its long-term PE ratio of 15.3x.

Additionally, the current PB ratio is 1.7x, compared to a long-term median PB ratio of 1.9x.

#2 Hindalco

Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is a subsidiary of the Aditya Birla Group.

Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It is also one of Asia's top primary aluminium producers.

Building and construction, auto-motives, packaging, electrical, consumer durables, refractories, and ceramics are some of the industries it serves.

Coming to its financials, Hindalco reported a decrease in sales for FY24 of 3.2% YoY to ₹2.1 trillion. The net income for the year saw a marginal increase of 0.6% to around ₹10,100 crore.

The company signed an MoU with American battery manufacturer Charge CCCV (C4V) for the supply of coated battery foils and structural components for the manufacturing of lithium-ion batteries.

As per the agreement, Hindalco will supply up to 2,000 tonnes of battery-grade aluminium foils to C4V for a period of five years.

The strategic collaboration also includes joint development of material technologies and related know-how.

Going ahead, the company is focused on downstream expansions in India, with an emphasis on increasing contributions from value-added products.

This strategy aims to enhance profitability and protect the company from fluctuations in aluminium prices.

Further, it expects to sustain its positive momentum in the copper business, driven by increasing volumes, robust demand, and improved TC/RC (treatment Charge/Refining Charge) margins.

At the time of writing, the PE ratio and PB ratio of Hindalco's stock is 13.5 and 1.3 respectively. Its long-term PE and PB ratio are 11x and 1.2x, respectively.

#3 Bajaj Finance

Started in 1987, Bajaj Finance (BFL) was a vehicle financing company and is now one of the largest and most diversified NBFCs in India.

Bajaj Finance is mainly engaged in the business of lending. BFL has a diversified lending portfolio across retail, SME and commercial customers with a significant presence in urban and rural India.

 

Coming to its financials, the non-banking finance company Bajaj Finance reported a 14% YoY growth in its consolidated net profit to ₹3,910 crore in the April-June period, driven by robust growth in net interest income (NII).

NII expanded by 25% YoY to ₹8,365 crore. In Q1 FY25, the cost of funds was 7.94%, an increase over the January-March quarter (Q4) of FY24, reflecting higher borrowing costs.

The net interest margin (NIM) compressed in Q1 FY25 compared to Q4 FY24, due to increased cost of funds changes in asset under management (AUM) composition.

Going forward, Bajaj Finance is looking to maintain its market share and running its business at a similar growth rate. Despite a competitive market, the company is holding its ground effectively.

At the time of writing, the PE ratio and PB ratio of Bajaj Finance's stock is 27.1 and 5.5 respectively. Its long-term PE and PB ratio are 44.4x and 8.8x, respectively.

#4 Kotak Mahindra Bank

The bank is the third largest Indian private sector bank by market capitalisation.

It offers products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.

Coming to its financials, Kotak Mahindra Bank reported NIM of 5.02% in the June 2024 quarter vis-a-vis 5.57% a year earlier.

The bank has sustained net NPAs below 1.5% of its loan book all these years. Its institutional memory of tiding over one credit crisis after the other for nearly 25 years has also served it well.

The bank's loan book has grown at a CAGR of over 25% over the past decade. This has been supported by a healthy contribution of low-cost deposits (current and savings accounts).

Shares of Kotak Mahindra Bank are down 11% in 2024. The stock is down after the RBI imposed new restrictions on onboarding clients through online channels and issuing credit cards.

The bank has seen a substantial number of savings accounts opened through its 811 digital platform, with a majority of unsecured products also processed digitally.

The digital segments have shown an impressive growth of 40% per year, outpacing the overall growth rate of 18%.

In its latest conference call, the management said that this is expected to impact the pace of customer accretion.

However, the bank is cognizant of this fact and is planning to deepen its relationship with existing customers to ensure steady business growth.

It has taken measures for adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.

At the time of writing, the PE ratio and PB ratio of Kotak Mahindra Bank's stock is 19.2 and 2.7 respectively. Its long-term PE and PB ratio are 29.2x and 4x, respectively.

#5 BPCL

BPCL, a major Indian state-owned oil and gas company, is strategically approaching the green hydrogen landscape.

Coming to its financials, BPCL reported an increase in sales of 3.2%, during the first quarter of FY25.

BPCL reported a 73% drop in its net profit in the June quarter as refinery margins dropped and a fuel price reduction slashed the marketing margin.

BPCL's estimated capital expenditure for FY25 is ₹16,400 crore, with ₹26 bn already spent in Q1.

BPCL's domestic market share increased by 3.2% YoY, reaching 13.16 million tons. The company commissioned over 170 new retail outlets this quarter, aiming to reach a total of 23,000 by year-end.

Additionally, BPCL's aviation business grew 15%, capturing a market share of 26.9% among PSUs.

The company is exploring new refining capacities to address product shortfalls, with potential new refining units currently under evaluation.

Additionally, BPCL has a long-term aspiration to double profitability through strategic projects and expansions.

At the time of writing, the PE ratio and PB ratio of BPCL's stock is 7.7 and 1.9 respectively. Its long-term PE and PB ratio are 8.8x and 1.8x, respectively.

Conclusion

Indices like the Nifty 50 offer valuable insights into market trends and include stocks that have passed rigorous criteria, making them strong candidates for any watchlist.

However, even these scrutinized stocks carry risks, and market volatility can impact their performance.

Investors should carefully evaluate each opportunity, balancing potential rewards with the inherent risks, and ensure their choices align with their financial goals and risk tolerance.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com