3 Sensex Stocks That Are Undervalued

It often arises from temporary pessimism, sector cycles, or overlooked fundamentals.

However, not all “cheap” stocks are good investments. Some could be value traps, where low valuations reflect weak business quality, poor governance, or structural decline.

Investors must carefully assess earnings sustainability, debt levels, industry outlook, and management credibility. Blindly relying on low price to earnings (PE) or price to book (PB) ratios can be misleading. True value investing requires patience, thorough research, and the ability to distinguish between temporary mispricing and genuine long-term risks.

Here are 3 undervalued Sensex stocks. In determining these stocks we have compared the PE and dividend yield of these companies vis a vis the BSE Sensex. 

The Sensex PE and dividend yield refers to the price-to-earnings ratio and dividend yield of the BSE Sensex, which represents 30 large companies listed on the BSE.

#1 HDFC Bank 

First on the list is the stock of HDFC Bank.

HDFC Bank is one of India’s largest private banks, founded in 1994 and headquartered in Mumbai.

It offers retail, corporate, and digital banking services, including loans, deposits, and credit cards. Known for strong asset quality and technology focus, it has grown rapidly over decades.

The 2023 merger with HDFC Ltd. significantly expanded its scale, making it a global banking giant with a vast customer base and nationwide presence.

	PE	Dividend Yield
HDFC Bank	15.1	2.8%
BSE Sensex	21.1	1.18%

Source: Equitymaster/Screener

The stock of HDFC Bank is cheaper when compared to the BSE Sensex companies based on both PE ratio and dividend yield. In fact, it’s cheaper even when compared to PB ratio.

Recently, the bank reported quarterly numbers. It was a stable Q4 quarter with steady profit growth, modest NII expansion, and strong balance sheet growth.

However, margins remain under pressure after the HDFC Ltd. merger, which is something investors are closely watching.

The board of HDFC Bank recommended a final dividend of Rs 13 per share for FY26 (face value Re 1), subject to shareholder approval. Including the earlier Rs 2.5 interim dividend, the total FY26 dividend comes to Rs 15.5 per share.

#2 Infosys

Next on our list is the stock of Infosys.

Infosys is one of India’s leading IT services and consulting companies, headquartered in Bengaluru.

Infosys helps companies with digital transformation, including cloud, AI, data analytics, and outsourcing services.

	PE	Dividend Yield
Infosys	16.3	4.1%
BSE Sensex	21.1	1.18%

Source: Equitymaster/Screener

The company’s PE has shrunk recently due to sharp selling pressure in the stock. Worries over AI has led to selling pressure in almost every IT stock. 

This has led to the PE shrinking to 16.3 times vs the BSE Sensex companies at 21.1 PE. The stock gives a dividend yield of 4.1%.

Infosys long-term prospects are driven by digital transformation, cloud adoption, and growing AI opportunities, supported by a strong global client base and consistent deal wins.

However, near-term growth remains subdued due to weak global IT spending, especially in the US and Europe. Margin pressures and evolving client priorities also pose challenges. While AI offers new revenue streams, it may disrupt traditional outsourcing.

#3 ITC 

ITC Ltd is a diversified Indian conglomerate with businesses spanning FMCG, cigarettes, hotels, paperboards, packaging, and agri-products. 

Its cigarette segment drives strong cash flows, funding rapid growth in FMCG brands like Aashirvaad, Sunfeast, and Bingo.

	PE	Dividend Yield
ITC	19.4	4.6%
BSE Sensex	21.1	1.18%

Source: Equitymaster/Screener

The ITC dividend yield is attractive and way above that of the Sensex companies average. The stock is slightly undervalued in terms of BSE Sensex PE average.

ITC has steady long-term prospects driven by strong cash flows from cigarettes and growing FMCG, agri, and paper businesses.

Its FMCG segment is scaling up, improving margins and reducing dependence on tobacco over time. The recent hotel demerger has unlocked value and improved focus.

However, regulatory risks on cigarettes, intense FMCG competition, and slower-than-expected margin expansion remain concerns.

Long-term performance will depend on how successfully it transitions into a diversified consumer goods company.

Should You Consider Undervalued BSE Sensex Stocks?

Investing in undervalued BSE Sensex stocks offers a favourable margin of safety, as large-cap leaders often possess the resilience to recover from temporary market corrections. 

These companies typically provide stable dividends and the potential for capital appreciation when valuations revert to their historical means.

However, risks include value traps, where a stock remains cheap due to fundamental business decay rather than market oversight.

Furthermore, large-caps may underperform high-growth sectors in the short term, leading to opportunity costs. Success requires deep fundamental analysis to distinguish between temporary price dips and structural declines in a company’s competitive position.

Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions. 

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…

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