Which sectors are expensive and
Indian equities may see some softness in May 2026, but valuations across many sectors remain elevated compared to their long-term averages, according to a regional valuation study by PL Capital.
The brokerage’s latest quantitative report shows that information technology (IT), fast-moving consumer goods (FMCG), hospitals, hotels, real estate and retail sectors are now trading below historical valuation averages, with cyclical and industrial sectors continuing to command premium multiples.
“Overall, valuations for May’26 remain mixed,” PL Capital said. “While industrial and cyclical sectors such as capital goods, cement, chemicals, automobiles, auto parts and textiles continue to trade above long-term averages, defense and power are among the costliest sectors.”
The report analyzed one-year-ahead price-to-earnings (P/E) multiples across 20 sectors and found that only nine sectors are currently trading below their long-term average valuations.
Defense, electricity remain expensive
PL Capital said that the defense sector is the most expensive sector.
The sector currently trades at a one-year Forward P/E of 36x, almost double its long-term average of 19x. Despite a 39-fold decline from early May, valuations remain near the upper end of the historical range, the brokerage said.
Power generation and distribution stocks also remain at a heavy premium. The sector trades at 24 times forward earnings compared to the historical average of 15 times.
Capital goods is another segment where valuations remain elevated.
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IT facilitates retail assessment
On the other hand, some sectors that have performed poorly over the past year appear relatively cheap.
The IT sector is trading at a Forward P/E of 17x, which is well below its long-term average of 22x and near the lower end of its historical valuation band.
PL Capital said, retail stocks also look attractive from a valuation perspective.
The sector’s Forward P/E has fallen to 57x from 62x at the beginning of May, much lower than its long-term average of 78x. According to PL Capital, retail remains the most undervalued sector relative to its historical average.
Hotels, another sector that has improved in recent months, trades at 32 times forward earnings compared to the long-term average of 47 times. Real estate stocks are also available at 26 times earnings compared to their historical average of 36 times.
FMCG and hospitals, traditionally considered defensive sectors, are also trading below their long-term valuation averages, giving investors a relatively better exposure compared to some of the market’s more crowded subjects.
Limited signs of deep devaluation
Despite differences across sectors, PL Capital does not see broad-based cheapening in the market.
“Most sectors remain within their historical valuation bands, indicating limited signs of deeper undervaluation across the market,” PL Capital said.
Pharmaceutical companies are broadly trading near fair value, while metals, oil & gas and textiles remain marginally above their long-term averages amid continued cyclical strength.
The brokerage noted that for investors, valuation opportunities are becoming concentrated in select sectors rather than the broader market.
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