Returns Trump Valuations: Are these Stocks Screaming a Buy?

A Mint Analysis of 3,700 bse-listed companies finds that 212 stocks have delivered over 30% returns in the past year as their price-to-earnings (p/e) ratios declined. This rare divergence sugges a shift in investor focus-from re-rating-Dr. Driven Gains to Core Earnings Performance.

The list spans Four Large-Cap and Nine Mid-Cap Stocks, but is dominated by small caps. Their outperformance is larger anchored in fundamentals, with 72% reporting healthy core earnings and strong growth in earnings per share

When a Falling P/E isn’t a red flag

The p/e ratio, one of the most closely tracked metrics in equity markets, how much investors are willing to pay for each rupee of earnings. A Rising P/E Typical Reflects Optimism About A Company’s Growth Prospects and Can Amplifey Share-Price Gains. Convercely, a declining p/e-or de-rating-is often seen as a sign of caution, driven by macro concerns or unseirtainty Around earnings visibility.

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While the ideal Scenario Sees Rising Earnings Fuel Both Share Price and P/E Growth, these 212 stocks offer a different narrative. Their earnings have surged, even as valuations have compressed.

“The fall in p/e ratios signals cautions. Bhavik Joshi, Research Analyst at invasset PMS. “This trend reflects a shift in market behavior.”

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De-rating typically Signals Scepticism, Joshi explained. It can be due to global headwinds, sector-specific concerns, or mutated earnings expectations. But when Paired with Sharp Eps Growth, it can also indicate market misprint raather than fundamental weight.

So What’s Holding Back Re-Rating?

“Short-Term Global UncertainTies and a Wait-Watch Approach Earnings Consistency have Contributed to the Market’s Reluctance to Reeluctance to Relauctance to Reeluctance to Reel Accounts at Axis Securities. “However, The Indian Economic Structure Continues to Strengthen on Several Fronts.”

Fundamentals take charge

For these select stocks, Fundamentals clear Took Charge.

Take Telecom Giant Bharti Airtel, The Standout Large-Cap Performr in this group. Its p/e dropped sharply from 139x to 56x, yet the stock gained 35% over the year. The Real Driver? A Tripling in EPS (Excluding One-Offs or Exceptional Gains), From 11 in fy24 to 35 in FY25. The company’s EPS is projection to risk further to 69.23 by fY27, even as the p/e is expected to fall to 26.86x, as per bloomberg estimates.

Among Mid-Caps, Ge Vernova T & D India has posted a return of 69%, with p/e Falling from 186x to 94x. A sharp improvement in execution helped push eps to 24 in FY25, up from 7 the previous year. EPS is projection to reach 42 by fY27, with valuations expected to continue Easing.

Hitachi Energy India Saw Its Stock Rally 76% While Its P/E Declined from 270x to 213x, Supported by Eps Nearly Doubling to 90. Further, Laurus Labs Climbed 37% With Eps Growing to 7, While Its P/E Fell to 87x from 108x. Both firms are expected to continue delivering double-digit EPS growth over the next two years.

Fortis Healthcare, which Saw Its Eps Rise to 2 in fy25 from 1 in FY24, Delivered A 53% Stock Return. Bloomberg Estimates Point to Robust Earnings Growth Ahead, with EPS Projected at 13.7 in fy26 and 17.8 in FY27 – Potentially brings its its projection p/e to 52x and 40x, respectively.

“Despite Strong Earnings and Solid Returns, Companies like Bharti Airtel and Ge Vernova Have Seen Valuation Multiples Compress, Reflecting a Market Shift Core Performance Core Performance Core Performance Core Performance Core “This trend highlights the need to focus on fundamentals and earnings as key drivers of value.”

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For now, Macro trends and earnings performance remain key to market direction.

“In the current environment, large caps and select mid/small caps with strong balance sheets are well-postioned to outperform. In the Near Term, Macroeconomic Indicators and Earnings Will Continue to GUDE Market Direction. As Cyclic and Structural Drivers Align, Re-Retling Opportunities will emerge, Thought this will be a gradual recovery which will be sailed through Turnard stories, “said Rajan.