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While the benchmark index remained almost flat for the entire 2022, some of its constituents delivered decent returns to investors. However, from the valuation perspective, the price rally in a few of these stocks might not justify their current rich valuations.
As we have entered 2023, here are 2 Nifty 50 stocks you need to stay cautious of this year as they are the most expensive among all index constituents, trading at a P/E ratio of over 100!
Adani Enterprises Limited
The first stock on the list might not surprise most of you. It’s from the Adani Group – Adani Enterprises Limited (NS:), having a market capitalization of INR 4,39,852 crores. It is the most expensive stock on the Nifty 50 list, trading at a gigantic P/E ratio of 566.41. No other stock even comes close to this.
These sky-high valuations were the net result of a double whammy of price surge and income decline. The FY22 net income declined 15.8% YoY to INR 776.56 crores while the share price surged 123.7% in the last one year. Also, the profit margin for the year fell to a mere 1.1% which is the lowest since FY14, at least. The total liabilities in the books have also risen to INR 74,657.99 crores in FY22, which jumped by a whopping 128% from the previous fiscal year which is also a bit concerning.
Bharti Airtel Limited
The next one on the list is Bharti Airtel (NS:) which has a market capitalization of INR 4,65,348 crores. With the telecom outlook looking bright as the industry-wide ARPUs are expected to gradually rise in the future and only three prominent players in the industry to reap the benefits, Bharti Airtel seems to be placed well. However, the valuations at the current levels are still out of the comfort zone.
The stock rallied 17.6% in the last one year and touched an all-time high last month, primarily on account of a visible turnaround in the business, as it came back in profits in FY22, after two consecutive years of losses, with a net income of INR 4,254.9 crores. But still, the FY22 profit is not even 10% of the combined loss of INR 47,226.7 crores in FY20 & FY21. The earnings pick-up is visible but still, commanding a triple-digit earnings multiple of 109.3 seems a bit overstretched. Mutual funds have also trimmed their stake in the business, from 12.15% at the end of the June 2022 quarter to 10.74% by September 2022.
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