One-third of NSE 500 stocks trade below pre-Covid valuation; Is this a hidden buying opportunity?

Amid a broad market correction, nearly a third of NSE 500 stocks are now trading below their pre-Covid valuation based on price-to-earnings (PE) and price-to-book (P/B) ratios. This includes blue-chip names such as HDFC Bank, Bharti Airtel, Maruti Suzuki, ICICI Bank, and State Bank of India (SBI), which have seen valuations fall 10-60 per cent compared to March 2020 levels. While some stocks have declined due to weaker earnings, others continue to deliver strong performance without a corresponding valuation bump.

Banking and financials lead the valuation dip

The financial sector has been at the forefront of this valuation reset. HDFC Bank, Axis Bank, IndusInd Bank, and Canara Bank are among the players trading below their pre-pandemic price-to-book ratios. The sector has faced pressure due to margin compression and slower deposit growth. However, analysts believe that as credit expansion picks up and deposit growth stabilizes, bank valuations could see a meaningful rebound.

FMCG and metals offer long-term potential

Despite overall valuation compression, the FMCG sector remains a resilient bet. Hindustan Unilever, for instance, now trades at a PE of 51x, down from 68x in early 2020, with muted stock price gains over five years. Analysts expect a turnaround in consumer-driven stocks in FY26 as disposable incomes rise and interest rates decline. Similarly, the infrastructure and metals sectors are being closely watched for potential value plays, backed by strong order books and fair valuations.

Are we nearing a market reversal?

A significant driver of the recent correction has been heavy foreign institutional investor (FII) selling, with short positions nearing the 85 per cent threshold, a level historically associated with market rebounds. Domestic investors, however, have provided a much-needed support base, preventing steeper declines. According to experts, the market may consolidate in the near term, but selective buying opportunities are emerging.

What should investors expect next?

With India’s valuation premium over other emerging markets shrinking, experts suggest a strategic approach. While a short-term rebound is possible, India’s performance could lag behind markets like China and Brazil due to shifting capital flows. To navigate this shift, analysts recommend maintaining around 55 per cent of portfolios in large caps for stability while tapping into mid and small caps for long-term growth.

Despite some stocks still trading at high valuations, the correction has opened up opportunities in banking, financials, FMCG, and metals. As earnings stagnate and global capital movements evolve, staying disciplined and prioritising fundamentally strong stocks remains key to securing sustained returns.