75% blue chips below 5-year PEs; large caps more attractively valued

Should investors pick large-cap stocks over mid-caps at this juncture? Over 75% of the blue chips across sectors are trading below their five-year average price-to-earnings (PE) ratios.

In comparison, about 55% of the mid-cap stocks are trading above their five-year average PEs; which means, large-caps are cheaply valued compared to small-caps.

Large-caps have been at the receiving end in the last few months on account of foreign institutional selling, resulting in contracted valuations.



While the Sensex has declined half a percent in the past three months, BSE’s midcap and smallcap indices have gained 4% and 8%, respectively. Equity strategists say large-caps are better buys than small-caps now, but they advise investors to be choosy.

This is because a large section of blue-chip companies are either debt-laden or are in the commodity business, which is plagued by a global slowdown; or are banks, which are probably yet to see the worst of bad loans.

“It will be a good time to buy large-cap stocks once the FII selling slows down. These stocks will do much better then,” said Ajay Bodke, CEO & chief portfolio manager (PMS), Prabhudas Lilladher.