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What are Undervalued Stocks & How to Identify them?

What are Undervalued Stocks & How to Identify them?
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Imagine walking into a store and stumbling upon a hidden section tucked away in a corner, where you discover high-quality products at discounted prices. Already feeling excited, right? Well, the world of investing has its own version of this hidden treasure trove, known as undervalued stocks. 

Just as savvy shoppers relish the opportunity to snag a bargain, investors seek out undervalued stocks that are trading below their intrinsic value. These stocks are like hidden gems in the stock markets, often overlooked by the majority of people. But for those who recognize their true worth, investing in undervalued stocks NSE can provide an opportunity to capture significant returns as the market at discounted prices. 

In this blog, we will talk about the most undervalued Indian stocks and how you can invest in them.

What are Undervalued Stocks?

Undervalued stocks commonly referred as underperforming stocks are essentially those that are trading at a prices lower than their real or intrinsic value. Thus, making them potentially attractive investment opportunities. In other words, the market may not fully recognize or appreciate the true worth of these value stocks. 

This could occur due to various reasons, such as temporary market conditions, company-specific factors, or investor sentiment. Identifying undervalued shares doesn’t mean finding cheap stocks. The key is to look for quality stocks at prices under their fair values, rather than useless stocks at a very low price. 

Therefore, by investing in undervalued Indian stocks, investors aim to capitalize on the potential for their price to rise in the future as the stock market catches up to their true value.

Top Undervalued Stocks in India 2023

Let’s have a look at the most undervalued Indian stocks in 2023 that you might be interested to invest in. The list of undervalued stocks belongs to the Nifty 500 sector universe, however, you can also check for undervalued stocks in Nifty 50.

Stock NameSub-SectorMarket Cap (in Cr)Share Price
Bajaj Finance LtdConsumer Finance ₹4,37,849₹7,320.9
Coal India LtdMining - Coal₹1,41,711.94₹252.9
Hindustan Aeronautics LtdAerospace & Defense Equipments₹1,30,322.51₹3,966.55
Cholamandalam Investment and Finance Company LtdConsumer Finance₹90,386.44₹1,100.1
REC LtdSpecialized Finance ₹64,342.83₹235.95
PI Industries LtdDiversified Chemicals₹56,166.96₹3,642.85
Indian Railway Catering and Tourism Corporation LtdOnline Services₹53,800.00₹697.9
Linde India LtdCommodity Chemicals₹51,465.62₹6,581.6
Tata Elxsi LtdSoftware Services₹45,980.88₹7,375
Oberoi Realty LtdReal Estate₹39,990.79₹1,144.05

Note: The data is from 5th September August, 2023. However, for real-time updates on stock prices and market trends, visit smallcase stocks collection today!

Top Undervalued Stocks in India – Overview

Let’s have a look at the list of undervalued stocks in India.

Bajaj Finance Ltd

A non-banking financial company that provides a variety of financial products and services, including loans, insurance, and investment products. It is the largest non-banking financial company in India by market capitalization.

  • Moderate Risk: Stock is 2.21x as volatile as Nifty
  • Largecap: With a market cap of ₹4,37,849 cr, stock is ranked 10

Coal India Ltd

As one of the world’s largest coal producers, Coal India Ltd plays a crucial role in India’s energy sector. Its expansive coal reserves and government backing contribute to its market presence, though factors like environmental concerns and evolving energy trends warrant consideration.

  • Low Risk: Stock is 1.90x as volatile as Nifty
  • Largecap: With a market cap of ₹1,41,403 cr, stock is ranked 37

Hindustan Aeronautics Ltd

It is a leading aerospace and defense company in India. With decades of experience, HAL engages in aircraft and helicopter production, along with essential maintenance, repair, and overhaul services. Given its strategic significance in the defense arena, HAL’s growth trajectory holds considerable weight.

  • Moderate Risk: Stock is 2.76x as volatile as Nifty
  • Largecap: With a market cap of ₹1,30,921 cr, stock is ranked 42

How to Invest in Undervalued Stocks in India?

Investing in undervalued stocks in India can be done through a few different avenues. One common way is direct stock picking, where you research and choose individual companies. Another option is through mutual funds, investment portfolios that focus on value investing – these funds pool money from different investors and invest in a diversified portfolio of undervalued stocks. Additionally, exchange-traded funds (ETFs) centered on under valued stocks provide a convenient way to invest in a basket of such stocks that track a specific index.

However, if you’re confused about which stocks to pick, you can explore smallcases:

  1. smallcases are readymade portfolio of stocks/ETFs, that are based on a theme idea or strategy.
  2. They’re created and managed by SEBI-registered experts,
  3. smallcase.com offers over 200+ stock portfolios, created by 180+ managers.
  4. Some of the popular smallcases among new investors are as follows:

Equity & Gold smallcase by Windmill Capital

Top 100 Stocks smallcase by Windmill Capital

Disclosures for aforementioned smallcases

Key Factors and Ratios for Evaluating Undervalued Shares

When assessing the most undervalued stocks in India, several critical factors and ratios come into play, providing investors with valuable insights about undervalued stocks to buy now.

  • Price-to-Earnings (P/E) Ratio: A lower P/E ratio of a stock in the list of undervalued stocks in India suggests that a stock may be undervalued, as investors are paying less for each unit of earnings
  • Price-to-Book (P/B) Ratio: A lower P/B ratio implies that the stock may be undervalued relative to its book value. It suggests that investors are paying less than the company’s net worth per share.
  • Dividend Yield: A higher dividend yield suggests that a stock may be undervalued, as investors receive a greater return on their investment through dividends.
  • Earnings Per Share (EPS) Growth: A higher EPS growth rate indicates that the company is performing well and is likely to continue growing in the future. This can enhance the value of a stock and price-to-earnings (P/E) ratio.
  • Return on Equity (ROE): A higher ROE indicates that the company is efficiently utilizing its assets and generating a significant return on investment.
  • Debt-to-equity Ratio: The D/E ratio measures a company’s debt against its assets. A higher debt-to-equity ratio signifies that a company has more debt than equity.

What are the Advantages of Undervalued Shares?

Overall, undervalued shares can be a good investment for investors who are willing to take on some risk and who have a long-term investment horizon. However, it’s important to look at the advantages and disadvantages of under value shares.


  • Potential for High Returns: Undervalued stocks are typically trading below their intrinsic value, which means that they have the potential to appreciate in value over time. 
  • Lower Risk: Underperforming stocks may be less risky than other stocks, as they are typically trading at a discount. 
  • Potential for Dividend Payments: Undervalued shares may also be more likely to pay dividends than other stocks. This is because companies that are trading below their intrinsic value may be more likely to use their cash flow to pay dividends to shareholders rather than invest in growth.


  • Illiquidity: Undervalued shares may be illiquid, which means that they can be difficult to sell. This is because there may be few buyers for these shares, and the bid-ask spread (the difference between the price that buyers are willing to pay and the price that sellers are willing to accept) may be wider.
  • Volatility: Undervalued stocks can be more volatile than other stocks, which means that their prices can fluctuate more wildly.
  • Risk of Loss: There is always the risk that an undervalued stock will not appreciate in value. In fact, the stock may continue to decline in value, or it may even go bankrupt.

What are the Strategies for Mitigating Risks and Maximizing Returns?

There are a number of strategies that investors can use to mitigate risks and maximize returns while investing in the most undervalued stocks. Some of these strategies include:

  • Diversification: By investing in a variety of most undervalued stocks in India, you can reduce your risk if one stock performs poorly.
  • Do Your Research: Before investing in any undervalued stock, research company’s balance sheets, read analyst reports, and follow industry news. 
  • Invest for the Long Term: Undervalued stocks can be volatile in the short term, but they have the potential to appreciate in value over the long term.
  • Set Realistic Expectations: Don’t expect to get rich quickly. Instead, focus on investing for the long term and gradually building your wealth.
  • Use Stop-Loss Orders: A stop-loss order is an order to sell a stock if it falls below a certain price. This can help you to limit your losses if an undervalued stock begins to decline in value.

To Wrap It Up…

Undervalued stocks have a market value that is lower than their intrinsic value. They offer the chance to purchase shares from well-established companies at a lower price. However, it is important to do your research and understand the risks involved before investing in any undervalued stock.


1. What are the best undervalued stocks to buy for long term in India?

The three top undervalued stocks you can buy now are Bajaj Finance Ltd, Coal India Ltd, and Hindustan Aeronautics Ltd. However, it’s important to do your own research or consult a financial advisor before investing.

2. How can I invest in underperforming stocks?

Here are some common steps that a beginner investor should follow while investing in underperforming stocks:
1. Do your research
2. Identify quality stocks
3. Set a long-term investment horizon
4. Don’t panic sell
5. Diversify your portfolio
6. Rebalance your portfolio regularly

We understand how overwhelming the process can be, therefore, you can simply invest in smallcase and sit back to relax.

3. Is it a good time to invest in under value share?

Buying undervalued stocks may only benefit the investor as they can buy at a lower price and sell at a high price in future.

4. Who should invest in undervalued stocks?

Investing in the most undervalued stocks NSE can yield substantial returns. Undervalued stocks can be a good investment if you are willing to take on some risk and have a long-term investment horizon.

5. Why do stocks become undervalued?

There are many reasons why stocks can become undervalued. Some of the most common reasons include negative news, marketwide downturn effect, weakness in specific sectors, and mispricing.