Motilal Oswal Identifies Top Stocks Amid Sliding Nifty 50 Valuations

Indian Stock Market Witnesses Sharp Correction, Presents Valuation Opportunity

The Indian stock market has experienced a sharp correction since the beginning of the US-Iran war in the Middle East, with the benchmark Nifty 50 declining nearly 10% in one month. This decline is part of the broader underperformance of the Indian market in FY26, despite an improvement in the earnings revision trajectory from the depressing lows of FY25.

The Indian market's underperformance can be attributed to a confluence of factors, including stronger growth visibility in other markets and a more compelling valuation differential in favor of other Emerging Markets (EMs). These markets have benefited from improving prospects, driven by the global AI-led boom and rising commodity prices. In contrast, India's limited participation in the global AI "gold rush," along with perceptions of reduced geopolitical leverage following a brief kinetic conflict with Pakistan, have further weighed on sentiment.

Nifty Valuations Improve

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Analysts believe that after the recent 10% correction since the start of the US-Iran war, the valuations of the Indian stock market have become much sober. The Nifty 50 is trading at a 12-month forward price-to-earnings (P/E) ratio of 17.7x, which is a 15% discount to its long-period average (LPA) of 20.9x. Additionally, its price-to-book (P/B) value of 2.6x represents an 8% discount to its historical average of 2.9x, noted brokerage firm Motilal Oswal Financial Services (MOFSL).

The 12-month trailing P/E for the Nifty 50, at 20.7x, is at an 11% discount to its LPA of 23.2x. At 3x, the 12-month trailing P/B ratio for the Nifty 50 is at a 6% discount to its historical average of 3.2x.

Stock Market Strategy

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The uncertainty regarding the US-Iran war has necessitated careful and selective stock picking, as a swift resolution of the conflict could trigger pent-up buying and short-covering, analysts said. The Nifty-50 and Midcap-100 have corrected ~11%, with sectors such as Banking, Automobiles, Real Estate, and Consumer Goods bearing the brunt due to higher risk aversion, panic-driven selling, and rising oil prices.

Given these relative valuations, MOFSL finds greater value in largecap stocks as compared to midcap stocks. The brokerage firm is Overweight on Auto, PSU Banks, Diversified Financials, Technology, Consumer Discretionary, and Capital Goods + EMS, which are its key preferred investment themes. It remains Neutral on Telecom, Cement, and Healthcare, while retaining its Underweight stance on Private Banks, Consumer Staples, Oil & Gas, Utilities, and Metals within its model portfolio.

Stock Picks

In the Nifty 50 index, Motilal Oswal's top picks include:

• Bharti Airtel
• SBI
• ICICI Bank
• Lenskart Solutions
• Mahindra & Mahindra (M&M)
• Titan Company
• Bharat Electronics
• Eternal
• Tata Steel
• Infosys
• Interglobe Aviation

Top Non-Nifty 50 stock picks include:

• TVS Motor Company
• Billionbrains Garage Ventures (Groww)
• Indian Hotels Company
• AU Small Finance Bank
• Dixon Technologies (India)
• Premier Energies
• Coforge
• Radico Khaitan
• Delhivery
• ACME Solar Holdings