Most Undervalued Stocks in India – 2024 (2024)

Last Updated on Feb 1, 2024 by Harsh*t Singh

Investors are always on the lookout for undervalued stocks. These are the stocks that are valued at a lower price than their intrinsic value. Undervalued stocks present an opportunity to purchase shares at low prices and earn profits in the future. Let’s look at the top 10 most undervalued stocks in India, along with their advantages and disadvantages.

Most undervalued stocks in India

Note: To churn out a list of the 10 best undervalued stocks in India from Nifty 500, we have used four parameters on the Tickertape Stock Screener.

• Stock Universe: Nifty 500
• PE ratio: Set low to high

It is a crucial factor in determining whether a stock is underperforming currently and shall be profitable in the future. The lower the PE ratio of a stock, the higher the Earnings Per Share (EPS).

• 5Y Historical EPS Growth: Set to high
• 5Y Average Net Profit Margin: Set to high

It reflects the company’s overall profitability and financial health. The higher the net profit margin of a company, the better they are at maintaining pricing and cost control.

Note: The information shown here is as of 1st February 2024.

What are undervalued stocks?

Undervalued stocks are equity shares with a lower market value than their intrinsic value. There can be many reasons behind this, ranging from sector-specific to the market slowdown. The process of investing in undervalued stocks is known as value investing. This method is a key component of famed investor Warren Buffet’s investment strategy.

You can determine undervalued stocks by analysing the company’s financial statements and its fundamentals. Undervalued stocks are sometimes referred to as underperforming stocks.

Details of the 3 most undervalued stocks in India

Here are the details of the top undervalued stocks in India:

Oil India Ltd

Founded in 1889, Oil India Limited is a fully integrated exploration and production company in the upstream sector. The company is the second largest Indian-government-owned hydrocarbon explorer and producer and is among the most undervalued stocks in india.

• Its market cap equals Rs. 46,249.88 cr., and its 5-yr historical EPS growth is 23.58%. The company’s PE ratio is 5.30.
• Over the last 5 yrs, the market share increased from 3.62% to 5.42%.
• In the past year, the company has double-digit growth with an impressive 89.72% increase in the share price.
• The company is showing good signs of protibality and has a high buy reco from analysts.
• As per the Tickertape Scorecard, the stock is underpriced and has zero red flags.

Learn more about the stock and its performance here.

Coal India Ltd

With a market cap of Rs. 2,50,299.21 cr., Coal India Limited (CIL) is a holding company. The Company is engaged in the production and sale of coal. It serves power and steel sectors, as well as cement, fertiliser, brick and kilns industries, among others.

• The company’s 5-yr historical EPS growth is 32.15%. The company’s PE ratio is 8.89.
• Over the last 5 yrs, the market share stayed at 100%, making it a consistent leader in the sector.
• In the past year, the company has double-digit growth with an impressive 84.07% increase in the share price.
• As per the Tickertape Scorecard, most undervalued stocks in India showcases good signs of profitability and efficiency, and has a favourable entry point.

Click here to learn more about the stock’s financial performance.

REC Ltd

With a market cap of Rs. 1,31,411.04 cr., Rural Electrification Corporation Limited (REC) is a Navtrana Central Public Sector Enterprise under the Ministry of Power. The company mainly aims to finance and promote rural electrification projects nationwide. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects.

• The company’s 5-yr historical EPS growth is 20.20%. The company’s PE ratio is 11.77.
• Over the last 5 yrs, the market share increased from 21.72% to 22.61%.
• In the past year, the company has triple-digit growth with an impressive 324.90% increase in the share price.
• As per the Tickertape Scorecard, the stock is underpriced. It has a high-performance score but an average profitability score. The stock has no red flags.

Learn more about the stock’s performance here.

Why do stocks become undervalued?

There are several reasons for stocks to become undervalued. A few of them are listed below:

1. Changes to the market: Market crashes or corrections can cause the stock price to drop.
2. Cyclical fluctuations: Share prices are impacted by cyclical fluctuations, where the performance of certain industries’ stocks can decline during particular quarters.
3. Bad news: Negative press and economic, political, or social changes can decrease stock prices.
4. Misjudged results: When the stock performance is not similar to the predicted performance, the price can fall.

Advantages of undervalued stocks

There are certain advantages of investing undervalued stocks, such as –

• Earning Potential: Undervalued stocks possess the potential for significant value appreciation once the market acknowledges their true worth, potentially yielding substantial capital gains for investors.
• Purchase Low, Sell High: The core principle of value investing revolves around acquiring stocks at prices lower than their intrinsic value, allowing investors to secure shares at a reduced cost and potentially yielding higher returns when market pricing corrects.
• Dividend Returns: Even when undervalued, certain companies may continue paying dividends to shareholders, offering an income stream while waiting for the stock’s price to rise.
• Reduced Risk: In contrast to overvalued stocks, undervalued shares typically carry lower downside risk as they are already trading at a discount, providing investors with a safety cushion.
• Contrarian Investment Opportunities: Investing in undervalued stocks often involves going against prevailing market sentiment, offering contrarian investors a chance to enter the market when others are selling, potentially resulting in better entry points.
• Portfolio Diversification: Integrating undervalued stocks into a portfolio can bolster diversification, thereby reducing overall portfolio risk, as they may not necessarily move in tandem with the broader market, providing stability during market downturns.
• Potential for Recovery: Undervalued stocks are often associated with companies facing temporary challenges or setbacks. As these challenges are overcome or market conditions improve, these stocks have the potential to rebound.
• Long-Term Investment Value: Investors with a longer time horizon can harness the compounding effect of holding undervalued stocks as they appreciate in value over an extended period.
• Need for Discipline and Patience: Investing in undervalued stocks necessitates discipline and patience, encouraging investors to prioritise fundamental analysis and maintain a long-term perspective—a valuable approach to wealth accumulation.
• Recognition of Intrinsic Value: Over time, the market typically acknowledges the intrinsic value of undervalued shares, leading to price appreciation. This recognition can set in motion a self-fulfilling prophecy as more investors become interested in the stock.

Disadvantages of undervalued stocks

Investing in undervalued stocks may seem attractive to many investors; however, it’s crucial to be aware of the potential drawbacks and risks linked to this strategy. Here are some of the primary disadvantages associated with investing in undervalued shares:

• Uncertain Timing: A key drawback lies in the uncertainty surrounding the timeline for undervalued shares to realise their full potential. It might take an extended period, sometimes years, for the market to acknowledge their value, with no guarantees regarding when or if this will occur.
• Increased Volatility: Undervalued shares are often undervalued for valid reasons, which can include struggling companies or industries. This can lead to heightened price volatility, exposing investors to significant price swings and short-term losses.
• Limited Market Interest: Certain undervalued shares may lack investor attention, resulting in reduced liquidity. This means buying or selling these shares quickly can be challenging, potentially leading to unfavourable trade outcomes.
• Company-Specific Risks: Undervalued shares might belong to companies grappling with specific challenges, such as debt burdens, management issues, or industry difficulties. These issues can impede a company’s recovery and result in investment losses.
• Value Traps: It’s important to recognise that not all undervalued shares will rebound. Some may remain undervalued or decline further, becoming what’s known as “value traps” that trap investors in deteriorating investments.
• Opportunity Cost: While waiting for undervalued shares to appreciate, investors may miss out on other investment opportunities that offer better short-term prospects and returns.
• Psychological Stress: Dealing with the uncertainty and price swings associated with undervalued shares can be psychologically challenging for investors, potentially leading to stress and emotionally driven decisions.
• Neglecting Fundamentals: Focusing exclusively on a stock’s undervaluation may lead to overlooking other critical fundamental factors that could influence the company’s long-term prospects.
• Capital Loss: There’s always a risk that undervalued shares may not recover, potentially resulting in losses or even a complete loss of capital if the company faces bankruptcy.

Who should invest in undervalued stocks?

Investing in undervalued stocks can be an appealing strategy for a variety of investor profiles, including:

• Value-Oriented Investors: Value investors make undervalued stocks a central component of their investment strategy. They believe that the market occasionally misjudges stock prices, and by identifying undervalued companies, they aim to buy low and sell high when market corrections occur.
• Long-Term Investors: Investors with a long-term outlook can reap the benefits of investing in undervalued stocks. They are willing to hold these stocks for an extended period, patiently waiting for the market to acknowledge their true worth.
• Contrarian Investors: Contrarian investors thrive on bucking prevailing market sentiment. They are often attracted to undervalued stocks when others are selling, anticipating eventual rebounds in their value.
• Experienced Investors: Individuals with a deep understanding of financial markets, industry trends, and specific companies may be better equipped to spot undervalued stocks. Comprehensive research and analysis play a crucial role for this group.
• Risk-Tolerant Investors: Investing in undervalued stocks carries a higher level of risk, as there are no guarantees of immediate market recognition. Investors comfortable with elevated risk levels may find this strategy appealing.
• Patient Investors: Investing in undervalued stocks demands patience, as it may take time for market adjustments to occur and for stock prices to appreciate. Patient investors who can wait for potential value realization can benefit from this approach.
• Fundamental Analysts: Those who thoroughly scrutinise a company’s financials, earnings potential, and industry position can make well-informed decisions about undervalued stocks based on robust fundamental analysis.
• Diversified Portfolio Holders: Investors with diversified portfolios often allocate a portion of their holdings to undervalued stocks to balance risk and potentially enhance returns.

In a nutshell

Undervalued stocks have a lower market value than their intrinsic value. They present an opportunity to purchase shares at a lower price from well-established companies. However, there are risks associated with investing in undervalued stocks. Hence, it is always better to consult your financial advisor before investing. To list undervalued stocks based on different factors and invest in them, you can use Tickertape Stock Screener.

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