Top 5 Strategies to Find Undervalued Stocks in India

Investing in undervalued stocks can be like shopping during a sale – buying quality companies for less than they’re worth. These are shares trading below their “intrinsic” or true value, offering margin of safety and room for future gains. In recent years, Indian markets have run high – for example, the Nifty 50 trades at around a 20–22x P/E in mid-2025. When valuations feel elevated, smart investors focus on stocks trading at relatively cheaper metrics. In practice, this means screening for value, doing careful analysis, and timing buys – even using modern apps like  Bigul to help. The following five strategies blend fundamental analysis, valuation models, and smart tools to uncover India’s hidden gems. 

Each tip is useful for both long-term wealth builders and shorter-term traders aiming to spot bargains.

Screen by Financial Metrics (PE, PB, ROE, etc.)

The classic starting point is fundamental screening: use financial ratios to find low-priced stocks. Key indicators include:

• Price-to-Earnings (P/E) Ratio: A low P/E compared to peers/sector often signals value. Analysts often look for P/E below ~15 as a rough undervalued flag. For instance, if most IT companies trade at 25x earnings but one stock is at 12x, it merits a closer look.

• Price-to-Book (P/B) Ratio: If a company’s market price is below its book value (P/B < 1), it can be undervalued – assuming the business isn’t in distress. Many cyclical or industrial firms become cheap on P/B when profits slump.

• Growth-Adjusted Metrics: The PEG ratio (P/E divided by earnings Growth rate) helps incorporate growth. A PEG below 1 suggests the stock’s earnings can outpace its valuation. (For example, a company at 15x P/E growing 20% a year has PEG 0.75, which is attractive.) High ROE and ROCE numbers coupled with a low P/B is another bullish sign.

• Dividend Yield: A surprisingly high dividend yield (compared to industry norms) can hint at undervaluation – the company is sharing profits instead of reinvesting. However, also check if the high yield is sustainable.

Rather than memorizing just one ratio, use a stock screener. Platforms like Bigul and Trading View let you filter stocks by any combination of PE, PB, PEG, ROE, debt ratios, etc. Many successful picks show such patterns.

Tips:

• Compare each stock’s ratios to its sector and 5-yr averages. A P/E of 12 may be a bargain in FMCG, but not if that industry normally trades at 7x.

• Look at multiple ratios together – for example, a low P/E + low P/B + low debt level is more convincing than a single metric.

• Use peer comparison tools: Bigul allows comparing a stock’s valuation vs. peers to spot outliers.

Calculate Intrinsic Value (DCF and Margin of Safety)

Beyond quick screens, a deeper intrinsic valuation can confirm if a stock is truly cheap. This means estimating what the business should be worth and comparing it to today’s price. A common method is Discounted Cash Flow (DCF) analysis – projecting the company’s future free cash flows and discounting them to the present. If the DCF-derived value exceeds the market price, the stock is potentially undervalued.

Value investors also emphasize a margin-of-safety. This means not only should the stock be below your estimate of intrinsic value, but it should have a buffer (e.g. 20–30% below intrinsic) to protect against mistakes.

In practice, doing a DCF requires financials and assumptions (growth rates, discount rate). Young investors can use tools or broker scorecards for a quick estimate. Even a simple hurdle is: multiply a conservative EPS growth rate by current earnings to guess long-term earnings, then apply a fair PE. If that fair price is well above today’s price, it suggests undervaluation.

Example: Suppose an auto company earns ₹100 per share now and you project 15% annual profit growth for the next 5 years. Using 15x forward P/E (down from its historical 25x in a boom), you may calculate an intrinsic price of, say, ₹3,000. If the stock is trading at ₹2,000, there’s a ₹1,000 margin-of-safety. That gap signals a good value opportunity, assuming your projections are reasonable.

Sector and Market Analysis (Macro & Contrarian Picks)

Sometimes entire sectors go out of favor – creating undervalued opportunities. Savvy investors watch macro trends and sector cycles. For instance, if commodity prices plummet, mining or oil-services stocks may trade cheaply (low P/E, P/B) even though their businesses recover later. Buying these contrarian sectors early can pay off when the cycle turns.

Keep an eye on government policies and global factors. Changes in interest rates, inflation or regulation affect valuations. In plain terms: look where sentiment is poor but fundamentals still decent.

When markets heat up, focus on relative value. Even if overall valuations are high, some companies still trade at “reasonable valuations on a relative basis”. This means screening within each sector. For example, if FMCG stocks trade at 40x P/E, a company at 25x but with steady growth might be undervalued relative to peers. Sector-agnostic strategy can also help – maintaining a diversified portfolio means your “value” pick in one sector isn’t wiped out by a downturn in another.

Example: In 2021–22, many Indian IT stocks were richly valued, while many domestic consumption stocks (like certain rural FMCG or infra plays) were relatively cheaper. Investors who shifted some capital from overvalued segments into these laggards earned good returns. Always check if a low price is due to a temporary weakness.

Technical and Sentiment Indicators (Market Timing)

Even a fundamentally cheap stock may not bounce immediately – timing your entry can boost returns. For short-term traders and cautious long-term buyers alike, technical and sentiment cues can highlight when an “undervalued” stock is ready to rally. Key ideas:

• Oversold Conditions: Use indicators like RSI (Relative Strength Index) or stochastic oscillators. A stock with good fundamentals that has RSI < 30, or has retraced ~50% off recent highs, might be temporarily oversold.

• Support/Breakout Patterns: Chart patterns matter. A double-bottom, base breakout, or bounce from long-term moving averages can be buy signals.

• Investor Sentiment: Tools like  Trading view help to gauge overall market fear/greed. When sentiment is extremely negative (fear), many stocks get oversold. A contrarian mindset – buying when most are selling – is often cited by legendary investors.

Remember discipline: set stop-losses and position-size wisely. For young investors, focus first on long-term value. But if you want short-term gains, you might pick a fundamentally sound stock on sale and use a technical buy trigger to time your purchase.

Use Modern Research Tools and Advisors

No investor is an island. Leverage the information-rich platforms and communities available today. Many popular Indian investing apps come with built-in screeners, analyst calls, and educational content geared to finding value:

• Brokerage Screeners: Bigul’s screener and research tools let you apply all the filters mentioned above (PE, PB, RSI, etc.) easily. Use these filters daily to update your watchlist of potential buys.

• Educational Blogs & Videos: Bigul's blog and social media platforms regularly publish “investing tips” and case studies. These insights build your experience and help you spot patterns.

• Follow Experts Wisely: Read expert interviews and stock reviews from reputed sources. ET Markets, Moneycontrol, and Economic Times often discuss market outlooks. On trustworthy updates, brokerage reports can flag beaten-down sectors and names.

• News and Data: Keep up with company events – quarterly earnings, dividend announcements, or major contracts. Sometimes stocks dip on transient bad news, creating a short-term undervaluation.

Importantly, do your own due diligence. Read annual reports or management commentary if possible. Avoid tips from unverified social media accounts. Use platforms’ data (like pledged promoter holdings, debt levels) as part of your check.

Long-Term vs Short-Term: For investors focused on long-term wealth, emphasis should be on the fundamentals (strategies 1–3). Think in years, not days. But as a bonus, you can use strategy 4 tools to pick the best entry point. For short-term traders, fundamentals still matter (to avoid value traps) but timing and technicals gain weight. Always have an exit plan to protect gains.

Conclusion

Finding undervalued stocks in India combines art and science. You need solid analysis (financial ratios, intrinsic value models) together with market savvy (sector trends, sentiment). By systematically applying these strategies, an 18–30-year-old investor can spot bargain opportunities just as more seasoned traders do.

Remember the examples of past winners: Titan, Infosys, and Asian Paints – companies that looked modest in price at first but later delivered multibagger returns. Even Titan’s shares rose ~1,994% in 10 years, and strong banks like ICICI came out of distress to rebound.

Above all, invest with patience and discipline. Buying well below intrinsic value provides a “safety margin” and positions you to benefit when the market finally recognises a stock’s true worth.