Defence, Power Stocks Command Premium Valuations While Retail Remains Cheapest

Defence and power generation companies emerged as the most expensive segments of the Indian stock market in May 2026, while retail stocks remained the most undervalued sector, according to a sector valuation study released by Prabhudas Lilladher Research.

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The report showed that several industrial and cyclical sectors continued to trade above their long-term valuation averages despite mixed market performance during the month. Capital goods, cement, chemicals, automobiles, auto components and textiles were among the sectors commanding valuation premiums compared with their historical norms.

Defence and Power Lead Valuation Rankings

Among the sectors tracked in the study, defence stocks traded at a one-year forward price-to-earnings (PE) multiple of 36x, significantly higher than their long-term average of 19x. Power generation and distribution companies were valued at 24x earnings, compared with a historical average of 15x.

Other sectors also remained above their long-term valuation ranges. Capital goods traded at 37x forward earnings against a historical average of 31x. Cement companies were valued at 32x versus a long-term average of 25x, while chemical stocks traded at 33x compared with 29x historically.

Automobile stocks traded at 25x earnings against a long-term average of 23x, while auto parts and equipment companies were valued at 33x, above their historical average of 30x.

Several Sectors Trade Below Historical Averages

The report noted that nine of the 20 sectors under coverage were trading below their long-term average PE multiples at the end of May.

Retail remained the most discounted segment despite trading at 57x earnings, well below its long-term average valuation of 78x. Information technology stocks were valued at 17x earnings compared with a historical average of 22x.

Fast-moving consumer goods (FMCG) companies traded at 35x against their long-term average of 39x. Hotel stocks stood at 32x compared with a historical average of 47x, while real estate companies traded at 26x earnings versus a long-term average of 36x.

The report also identified hospitals, agrochemicals and building materials among sectors trading below their historical valuation levels. Agrochemical companies were valued at 18x earnings compared with a long-term average of 20x.

Market Performance in May

Despite pockets of valuation strength, benchmark indices ended May in negative territory. The Sensex declined 2.78% during the month, while the Nifty fell 1.87%.

Broader markets, however, outperformed the frontline indices. The BSE Mid Cap 150 index gained 2.49% in May, while the BSE SmallCap 250 index advanced 1.63%.

Prabhudas Lilladher Research noted that although valuations varied significantly across sectors, most segments continued to trade within their historical valuation bands, indicating that broad-based market undervaluation remained limited at the end of May.