Most Undervalued Stocks in India – 2024 (2024)

Last Updated on May 21, 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 invest in shares at low prices and earn profits in the future.

In this blog, we have derived the list of the top 10 most undervalued stocks in India, along with their advantages and disadvantages.

Most Undervalued Stocks in India (2024)

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

PE Ratio 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 5Y Avg Net Profit Margin.

5Y historical EPS growth and average net profit margin 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 20th April 2024.

🚀 Pro Tip: Select the filter “Dividend Yield” to identify top dividend yielding stocks.

How to Invest in Undervalued Stocks with smallcase?

Did you know you can invest in undervalued stocks selected by SEBI-Registered analysts? Well, that is a possibility via smallcase. Here’s a brief about what it is.

smallcases are modern investment products that help investors build low-cost, long-term & diversified portfolios with ease. A smallcase is a basket or portfolio of stocks/ETFs representing an idea – an objective, theme, or strategy. They are created and managed by SEBI-registered experts.

Among 500+ smallcases, here’s a smallcase that is focused on mid-cap and small-cap companies:

Value & Momentum smallcase by Windmill Capital

High Quality Right Price smallcase by Green Portfolio

Note: These smallcases are mentioned only for educational purposes and are not meant to be recommendatory. Investors must conduct their own research and consult a financial expert before making any investment decisions.

Disclosure for Value & Momentum

Disclosure for High Quality Right Price

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.

Top 10 Undervalued Stocks in india – Overview

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

Tamilnad Mercantile Bank Ltd

Tamilnad Mercantile Bank is an India-based private sector bank. The bank operates through four segments: Treasury, Corporate / Wholesale Banking, and Retail Banking. As of 26th April 2024, had a market capitalisation of Rs. 7,779.81 cr. and a stock price of Rs. 491.3.

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.

The company, as of 26th April 2024, had a market capitalisation of Rs. 66,419.82 cr. and a stock price of Rs. 491.3.

Coal India Ltd

With a market cap of Rs. 2,78,832.64 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.

REC Ltd

With a market cap of Rs. 118,824.23 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.

ICICI Securities Ltd

ICICI Securities offers a range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients. This small-cap Investment Banking & Brokerage company has a market capitalisation of Rs. 23,968.82 cr. and a stock price of Rs. 741.25.

Angel One Ltd

This small-cap company is a full-service retail stock brokerage company. It provides broking and advisory services, margin funding, loans against shares, and distributes financial products. The Investment Banking & Brokerage, as of 26th April 2024, had a market capitalisation of Rs. 25,505.15 cr. and a stock price of Rs. 2,837.05.

Aavas Financiers Ltd

Aavas Financiers is a housing finance company, engaged in providing home loans to the customers belonging to low and middle income segment in semi urban and rural areas.

On 26th April 2024, the company’s market capitalisation was Rs. 12,705.09 cr. and a stock price of Rs. 1,605.4. From the list of these fundamentally strong but undervalued stocks, this home-financing small-cap company generated the highest return since March, 2024.

Caplin Point Laboratories Ltd

Caplin Point Laboratories Limited is a pharmaceutical company. The Company’s product segments include Antibiotics, Non-steroidal anti-inflammatory drugs (NSAIDS), Ophthalmics, Pain Management and Anti-ulcers. As of 26th April 2024, the company’s market capitalisation was Rs. 10,306.43 cr. and a stock price of Rs. 1,357.15.

Oberoi Realty Ltd

Oberoi Realty Limited is engaged in construction, real estate development and hospitality. This real-estate stock has a market capitalisation of Rs. 53,602.24 cr. and a stock price of Rs. 1,474.2.

CreditAccess Grameen Ltd

CreditAccess Grameen is a non-banking financial company engaged in the microfinance sector.

The company, as of 26th April 2024, had a market capitalisation of Rs. 23,555.12 cr. and a stock price of Rs. 1,477.95.

Reasons Why Stocks Become Undervalued

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

• Changes in the market: Market crashes or corrections can cause the stock price to drop. For example, to skim the market froth among mid-cap and small-cap markets, Nifty Midcap and Smallcap fell exponentially during the process.
• Cyclical fluctuations: Share prices are impacted by cyclical fluctuations, where the performance of certain industries’ stocks can decline during particular quarters.
• Bad news: Negative press and economic, political, or social changes can decrease stock prices. For example, just after Hindenburg released a report on Adani Group, all the Adani stocks felt the pressure in the market and recorded a double-digit decline.
• Misjudged results: When the stock performance is not similar to the predicted performance, the price can fall.

Advantages of Investing in 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.

Risks Associated with Investing in 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 realisation 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.

How to Invest in Undervalued Stocks?

To invest in the undervalued stocks, follow the steps mentioned below –

• Open ‘Tickertape Stock Screener’
• Click on ‘Add Filter’ and select PE Ratio, 5Y Avg Net Profit Margin and 5Y Historical EPS Growth filters.
• Set the PE ratio to low, whereas set the 5Y Avg Net Profit Margin and 5Y Historical EPS Growth filters to high.
• From the list of suggestions, select the stock that aligns with your investment thesis.
• Place an order to invest in the undervalued stock.

Conclusion

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.

Frequently Asked Questions on Undervalued Stocks