Defence and Power Sectors Record Highest Expenditure in May, Retail Found to be Undervalued: PL Research

Indian Equities Valuations Remain Mixed in May 2026

The Indian equities market witnessed a mixed performance in May 2026, with valuations across various sectors exhibiting a range of trends. According to a report by Prabhudas Lilladher Research, industrial and cyclical sectors such as capital goods, cement, chemicals, automobiles, auto parts, and textiles continued to trade above their long-term averages.

In contrast, defence and power generation and distribution emerged as the most expensive pockets of the market, while IT, FMCG, hospitals, hotels, agrochemicals, building materials, and real estate traded below their historical average valuations. Retail remained the most undervalued sector among the 20 sectors analyzed, while consumer durables continued to appear expensive. Pharma was broadly fairly valued, and metals, oil and gas, and textiles traded moderately above their long-term averages.

The report highlighted that nine of the 20 sectors were trading below their long-term average price-to-earnings (PE) multiples at the end of May. However, most sectors remained within their historical valuation bands, indicating limited signs of deep undervaluation across the market.

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In terms of individual sectors, agrochemicals traded at a one-year forward PE of 18x, below their long-term average of 20x. Auto Parts & Equipment traded at 33x against a long-term average of 30x, while Automobiles stood at 25x compared with 23x historically.

The valuations of capital goods, cement, and chemicals sectors also deviated from their long-term averages, trading at 37x, 32x, and 33x, respectively, compared to their historical averages of 31x, 25x, and 29x.

Defence traded at 36x, significantly above its long-term average of 19x, while power generation and distribution traded at 24x against a historical average of 15x.

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Among sectors trading below historical averages, IT stood at 17x compared with a long-term average of 22x, FMCG at 35x versus 39x, hotels at 32x against 47x, and real estate at 26x compared with 36x. Retail traded at 57x, below its long-term average of 78x.

The Indian stock market also witnessed a decline in May 2026, with the Sensex falling 2.78% and the Nifty dropping 1.87%. However, the BSE Mid Cap 150 gained 2.49% and the BSE SmallCap 250 rose 1.63%.