An analysis of the BSE 500 stocks reveals that over a month into the 2009 rally, it was the stocks that had enjoyed lower price-to-earnings multiple that returned the most. BSE 500 stocks with a P/E of less than 10 (as on March 9) averaged a stellar 50 per cent return while the index delivered 35 per cent in over a month's time.
And the similarities don't stop here. Stocks with a rock-bottom P/E of less than 5 had delivered higher returns of 56 per cent on an average then. Stocks such as Gitanjali Gems, Rolta India, Tanla Solutions, Prime Focus and CMC, which enjoyed PE multiples of 2-4 times had more than doubled in value from March lows.
A good majority of the stocks that had returned more than 50 per cent in the period had enjoyed lower PEs. And of these, as many as eight out of every ten stocks had traded at a price earning multiple of less than 10 as on March 9.
What's more, the same trend held true of stocks from the same sector, with low PE stocks within each sector delivering better gains than their more expensive peers.
For instance, even then Tata Motors had zoomed ahead of Maruti Suzuki, Reliance Communications had trumped the returns of Bharti Airtel and Suzlon Energy had beaten NTPC hollow.
Notably, beaten down sectors such as realty had surged then too (stocks such as Unitech, HDIL, IVR Prime are examples here), while sectors such as consumer goods, and pharmaceuticals were laggards.
The power sector, however, had remained a poor performer in the rally.