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Raychaudhuri: The rally in Indian stocks could hide a slew bargains for the end of the year

India's flagship equity indices Sensex, and Nifty 50 are at all-time records, despite outperforming their Asian counterparts. This exuberance masks another reality, however: Many stocks are currently trading at or near their 52 week lows. These "beaten-down" names could offer investors attractive year-end deals.

This rally, which has seen Indian stocks rise by 9.5% this year is concentrated in a small number of companies.

As of December 5, when looking at 828 Indian companies that had a market value of more than $500,000,000, 109 stocks were within 5% from their 52-week?lows, and another 139 only slightly exceeded this level. These two categories of stocks that are flagging together represent roughly twice as many large Indian companies trading near 52-week highs.

In many cases, it's easy for investors to assume that these stocks are low-priced because they have good fundamentals. Earnings growth forecasts for many of these laggards are strong, their balance sheet is healthy, and the valuations remain reasonable.

According to FactSet's consensus, 14 out of 109 stocks that have been beaten down are able to meet a high standard. They all have a forecasted earnings growth per share of over 10% through 2027.

Four companies are worth more than $1 billion, and they include Inox Wind, HFCL (a telecommunications company), Tata Chemicals?and logistics giant Blue Dart. Blue Dart, the company with the lowest projected growth at 28%, is still a strong stock.

What sank THEm?

Why have they lagged behind?

Investors' narrow focus and idiosyncratic issues are the main reasons for this.

Inox Wind began the year with a PE of 29,6. Its July share issue, priced below market, raised concern about dilution to minority shareholders. Blue Dart was also concerned about valuation at the start of 2025 when it traded at a lofty ratio of 41 times earnings. The mood deteriorated after the government demanded additional taxes for one of its subsidiaries in September. Tata Chemicals also suffered from a fall in the price for soda ash, its main product, and an outage in its U.S. plant. HFCL disappointed investors as they started the year with a P/E of 36,4 only to have revenue drop by 24% within the first nine-months. Its owners also borrowed money, using more than 50% of their shares as collateral, which raised concerns that lenders would sell the shares if they fell any further.

These issues are not insurmountable but, in an year where India lost favour with foreign investors, small concerns can have a large impact on the stock market.

YEAR-END ?BARGAIN-HUNTING

The artificial intelligence theme has also been a key factor in the performance of Indian stocks this year. It has taken over investor attention, to the detriment other themes and companies. During these single-theme periods, markets often misprice the stocks, which allows "weaker shares" to outperform if underlying fundamentals remain strong.

In India, many companies that had been heavily liquidated in 2024 turned out to be outstanding performers in 2025.

By 2024, 98 of these stocks will be trading at or close to their 52-week lows. 18 of these companies were "quality" firms, with solid balance sheets, strong earnings forecasts and growth-adjusted values. Nine of the 15 companies had market capitalisations exceeding $5 billion. They have all beaten the 9.5% returns on Indian markets this year.

These companies, except for Reliance Industries, had strong earnings forecasts and their P/Es were either at or below the expected growth rates. Their 'impressive performance in the year 2025 is therefore not surprising.

This pattern is unlikely to repeat itself this year, given the high level of trade tensions between India and the U.S. In addition, it is harder to find good investment opportunities in markets which have experienced a sharp rally.

In reality, even in a strong stock market, it is possible to find high-quality shares whose prices are lagging behind. You just have to look hard and in the right place.

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(source: Reuters)