Valuations Ease After Sell-Off, yet Stay Relatively Elevated

Why It Matters

The shift signals a valuation correction that could reshape capital allocation, especially as banks stay attractive while broader market risk appetite wanes.

Key Takeaways

• Over 50% of BSE 500 below 3‑year average valuations
• 60% of stocks still above decade‑old valuation levels
• Banks retain valuations above three‑ and five‑year averages
• 56% of non‑lenders trade below three‑year P/E multiples
• Nearly 75% of stocks sit below 200‑day moving averages

Pulse Analysis

India’s equity market entered a pronounced correction in early 2026, with the benchmark indices shedding roughly 13% since the year’s start. The pullback coincides with heightened geopolitical risk stemming from the Iran‑Israel conflict, which has pressured sentiment and driven many stocks toward 11‑month lows. While the sell‑off has eased medium‑term valuation multiples, the broader market still reflects elevated pricing when viewed against a ten‑year horizon, underscoring lingering optimism among investors despite short‑term turbulence.

A deeper dive reveals a stark divergence between lending and non‑lending sectors. Banking and finance companies continue to trade above their three‑ and five‑year price‑book benchmarks, and three‑quarters maintain valuations above long‑term multiples, highlighting their defensive appeal. In contrast, 56% of manufacturing, services and trading firms now sit below their three‑year price‑earnings ratios, and only 42% appear cheaper than a decade ago. This sectoral split suggests that capital may increasingly flow toward financials, while cyclical firms face heightened discounting.

For investors, the prevailing mix of lower‑than‑average multiples and a majority of stocks trailing their 200‑day moving averages signals caution. Valuation metrics such as P/E and P/B remain useful filters, but the broader macro backdrop—geopolitical uncertainty and a still‑elevated long‑term valuation baseline—requires a nuanced approach. Strategies that balance exposure to resilient banks with selective, value‑oriented picks in under‑priced non‑lending stocks could capture upside while mitigating downside risk.