Best 10 Undervalued Stocks in India 2026 | Best Picks
February 17, 2026
Best 10 Undervalued Stocks in India 2026 | Best Picks
Feb 17, 2026
TABLE OF CONTENTS
Every smart investor knows one thing: real money is made not when markets are at their peak but when you buy a great company at the wrong price.
That is exactly what undervalued stocks in India are all about. The current market situation provides an excellent chance to identify the most undervalued stocks that exist in 2026 because market conditions continue to make investors anxious. If you're new to stock analysis, start with our guide on fundamental analysis vs technical analysis to build a strong foundation before diving in.
The guide provides information about 10 undervalued Indian stocks while teaching you how to identify these stocks, explaining the reasons behind their initial undervaluation, and providing guidelines for you to begin your investment journey. The resource provides practical guidance for both new investors and experienced investors who have spent several years in the market.
What Are Undervalued Stocks?
An undervalued stock is simply a stock that is trading below what it is actually worth. The market price shows a value that is less than the company's actual worth or its fundamental value.
Here is a clear example. A business generates annual profits of ₹50 per share while possessing substantial assets, having no debt, and being a developing enterprise. The market price of its stock stands at ₹300.
The stock appears to be undervalued because its actual value based on earnings assessment should be significantly greater. Intelligent investors search for these types of undervalued shares.
Top 10 Undervalued Stocks in India 2026
Most visitors to this location visit this section because it contains their main attraction. Real data examination is necessary to identify the currently optimal undervalued stocks that investors should purchase.
The following list contains undervalued stocks that I created through assessment of P/E ratio, P/B ratio, market cap, and fundamental health. Please note that this is for educational purposes. Always do your own research before investing.
| Stock Name | Sector | P/E | P/B | Market Cap | Why Undervalued |
|---|---|---|---|---|---|
| State Bank of India | PSU Banking | 8.2 | 1.1 | Large Cap | Trades below sector P/E despite strong loan growth |
| ONGC | Energy | 6.5 | 0.9 | Large Cap | Low valuation despite consistent dividend payouts |
| NTPC | Energy/Power | 12.4 | 1.3 | Large Cap | Renewable push not yet priced in |
| Sun Pharma | Pharma | 28.1 | 4.1 | Large Cap | Global expansion is underappreciated by the market |
| Tata Motors | Auto | 7.8 | 1.9 | Large Cap | JLR recovery not fully reflected in stock |
| Canara Bank | PSU Banking | 5.9 | 0.8 | Mid Cap | Strong NPA improvement ignored by the market |
| Dr. Reddy's | Pharma | 18.3 | 3.2 | Large Cap | The US generics pipeline is undervalued |
| Coal India | Energy | 7.1 | 2.8 | Large Cap | Steady dividend yield, depressed valuation |
| BHEL | Capital Goods | 38.6 | 2.4 | Mid Cap | Order book recovery is not priced in |
| ITC | FMCG | 22.4 | 6.1 | Large Cap | Cigarette business stigma suppresses valuation |
Now, let me break this list of undervalued stocks into two important categories.
Undervalued Large Cap Stocks in India
Investors should focus on undervalued large-cap stocks because these investments provide the highest level of security. The market currently undervalues these established companies, which maintain financial stability. The table above shows that SBI, ONGC, NTPC, and Coal India fall into this specific category. People tend to undervalue public sector companies because they believe government ownership affects their value, while these companies maintain strong fundamental performance. Understanding the difference between large cap vs mid cap vs small cap stocks can help you decide which category suits your risk appetite.
The beauty of large caps? Large companies maintain a permanent existence. You need only to wait with your complete attention.
Fundamentally Strong but Undervalued Stocks
The actual exciting part of the events begins at this specific location. The market has not yet recognized companies that have strong business fundamentals and trade below their actual worth.
Think of Dr. Reddy's or Sun Pharma. Their US pipeline is underappreciated. Tata Motors operates Jaguar Land Rover (JLR), which has actual recovery potential that the market still has not recognized. These companies represent fundamental undervalued stocks because their business operations meet high standards despite being unknown to investors.
People who want to create substantial financial resources should focus on these investment opportunities. You can also explore our list of best multibagger stocks in India for more high-potential ideas.
How to Find Undervalued Stocks in India: 5 Key Indicators
The process of discovering undervalued stocks in India requires more than guesswork because it follows established procedures. The process of finding this information requires a specific method, which exists as the only solution to the problem.
1. P/E Ratio (Price-to-Earnings)
P/E Ratio = Stock Price / Earnings Per Share
The current P/E ratio of the stock should be compared to the average P/E ratio of its industry. If a banking stock has a sector average P/E of 12 and the stock you are looking at has a P/E of 8, that is a signal worth investigating. The stock shows potential undervaluation because its P/E ratio is below the sector average. Read our detailed guide on the P/E ratio to understand how to use this metric effectively.
2. P/B Ratio (Price-to-Book)
P/B Ratio = Stock Price / Book Value Per Share
A P/B below 1.5 generally suggests the stock may be undervalued relative to its actual assets. Many PSU banks in India currently trade below 1 P/B, which is why they frequently appear in any undervalued stocks India discussion. Learn more about price-to-book ratio analysis in our dedicated guide.
3. PEG Ratio (Price/Earnings to Growth)
PEG = P/E Ratio / Expected Earnings Growth Rate
A PEG value that falls below 1 indicates that an asset is trading at an undervalued position. The indicator provides value because it measures growth, which the standard P/E ratio fails to capture. A stock can have a high P/E but still be fairly valued if it is growing fast enough.
4. Free Cash Flow (FCF)
This is one I pay close attention to. A company that generates strong free cash flow—which represents its remaining cash after conducting business operations and acquiring assets—demonstrates financial stability. A company with a low P/E and high FCF receives an undervalued assessment in financial markets. Understanding a company's cash flow statement is key to assessing this metric properly.
5. Dividend Yield
The dividend yield of a quality company rises when its stock price declines and it maintains its regular dividend payments to shareholders. The existence of a high dividend yield in a fundamentally strong company marks one of the most obvious indicators that demonstrate that the stock is being sold at an undeserved low price.
Here is a useful tip: use an undervalued stock screener like the Dhanarthi stock screener to filter stocks by these five parameters together. The system performs research work through hourly processes, which assist you in building your list of undervalued stocks by using actual information.
Why Do Stocks Become Undervalued?
This is an interesting fact: great companies are even sold occasionally. And the causes are normally temporary.
Market overreaction: When a business panics due to an awful quarterly performance, it is selling off long-term business, though not in the long run.
Negative feelings among the sector: The scandal of one firm in an industry takes down the rest of the industry, including the good ones.
Temporary earnings miss: An unexpected cost or a backlog in orders incurs a loss of profits for a quarter or two.
Macro events: The entire market can be pulled down by rising interest rates, global recessions, or a depreciated rupee, which can create the best undervalued stocks to buy now for patient investors. Understanding bullish and bearish market cycles helps you recognize when these opportunities arise.
The point here is that it is not only the mood of the market that has changed in the business.
Benefits and Risks of Investing in Undervalued Stocks in India
When people look at undervalued stocks for investment purposes, they should understand that this strategy offers both benefits and potential dangers. Investors who have complete knowledge about both investment opportunities and their associated dangers will succeed better than their competitors.
Benefits
Margin of Safety: The process of measuring intrinsic value through stock analysis enables investors to gain automatic financial protection through their purchasing decision. The stock price maintains its maximum decline protection because its value will eventually increase.
Dividend Income: The price of undervalued companies, which include public sector undertakings, will pay consistent dividends until their stock value increases.
Long-Term Upside: The market will eventually recognize the company's actual value, which will result in a price correction that brings high rewards to investors who remain patient.
Risks
Value Traps: This is the biggest risk. Some stocks are cheap for a reason: the business is actually broken.
Long Holding Period: A low P/E does not always mean opportunity; sometimes it means distress. The time needed to hold undervalued stocks will extend until their value finally reaches the fair market price. Your capital stays locked while other opportunities pass by.
Opportunity Cost: Holding an underperforming stock means missing out on other investments that could generate returns in the same timeframe.
The financial report analysis tools at Dhanarthi can help you dig deeper into a company's financials before committing, especially when you are trying to separate a value trap from a genuine opportunity.
How to Invest in Undervalued Stocks in India in 2026
One of the sides of the equation is how to find undervalued stocks. The next thing is actually investing in them. This is a simple five-step process:
Step 1: Open a Demat Account: With a trusted broker such as Zerodha, Groww, or Angel One. You can never invest in stocks without one. Check out our guide on share brokers in India to find the right platform for your needs.
Step 2: Filter Stocks: Using a stock screener with filters on P/E, P/B, Free Cash Flow, and Dividend Yield. It is easy and quick with the best stock screener tools such as Dhanarthi Screener.
Step 3: Filter Your Criteria: P/E: Below sector average, P/B: below 1.5, ROE: above 12. This is whittled down to really interesting candidates.
Step 4: Check Fundamentals and Management: Read the 3 most recent annual reports, check promoter holding percentage, and find any red flags such as pledged shares or a change of auditors.
Step 5: Invest with a 3-5 Year Horizon: Underpriced stocks reward patience. They will not have immediate success. You have to set a target price you have decided on, and leave the fundamentals to do the work.
Conclusion
The process of discovering hidden gem stocks in India during 2026 requires systematic procedures instead of relying on chance. The right indicators must be used together with financial ratio analysis and peer comparison to make patient investment decisions.
The current market situation in India provides a genuine opportunity for investors to discover undervalued stocks, which particularly exist within the PSU banking and energy, pharmaceutical, and FMCG sectors.
Great companies undergo temporary market mispricing throughout various periods. Your task requires you to identify the situation before it becomes visible to others. Start your stock analysis process by studying fundamental stock data and then select an effective screening tool before making investment decisions.
Dhanarthi operates as an effective entry point for beginners who want to learn about stock analysis and fundamental concepts straightforwardly.
Smart investment requires value-based investment decisions.
Disclaimer: This article is for educational purposes only and should not be considered as financial or tax advice. Tax laws are subject to change, and individual circumstances vary. Please consult with a qualified chartered accountant or tax advisor for personalized guidance based on your specific situation.
FAQs
1. What are undervalued stocks in India?
Undervalued stocks are shares trading below what the company is actually worth. The market is pricing them low, even though the business is doing fine. These are the stocks smart investors love to pick up cheap and hold until the price catches up to real value.
2. Which is the most undervalued stock in India right now?
Based on current valuations, PSU banks like SBI and Canara Bank and energy majors like ONGC and Coal India are among the most undervalued stocks in India. They trade well below their true worth despite solid fundamentals. Always verify with fresh data before putting your money in.
3. What P/E ratio means a stock is undervalued?
There is no fixed number, but a stock trading 30 to 50 percent below its sector's average P/E is worth a closer look. A PSU bank at P/E 7 when the sector average is 12 is a clear signal. Context matters, so always compare within the same industry.
4.Are undervalued stocks good for long-term investment?
Yes, if picked carefully. Stocks that are fundamentally strong but undervalued tend to reward patient investors well over a 3 to 5 year horizon. The real risk is picking a value trap, which is a stock that looks cheap but the business is actually struggling underneath.
5. How do I use a stock screener to find undervalued shares?
Open a free tool like Screener.in, then filter by P/E below sector average, P/B below 1.5, positive free cash flow, and ROE above 12 percent. Sort by market cap to start with large caps. This quickly narrows down a solid list of undervalued stocks worth researching further.
6. What is the difference between undervalued stocks and penny stocks?
Undervalued stocks are fundamentally strong companies that the market has temporarily priced low. Penny stocks are just low-priced shares, often with weak or no business behind them. Never confuse the two. A great company at the wrong price is very different from a bad company at any price.
7. How do I know if a stock is undervalued or a value trap?
Check if the company has growing revenues, low debt, strong free cash flow, and honest management. A value trap looks cheap but keeps getting cheaper because the business is not doing well. If the fundamentals are solid and the price is low, that is a genuine undervalued opportunity.
8. What are the best undervalued large cap stocks in India for 2026?
SBI, ONGC, NTPC, Coal India, and Tata Motors are widely discussed as the best undervalued large cap stocks right now. These are big, established companies trading below their sector averages. Large caps carry lower risk and tend to be safer bets for first-time investors entering value investing.
9. Why do good stocks become undervalued in the market?
It usually happens for temporary reasons like a bad quarterly result, negative news in the sector, or a broader market selloff. Sometimes even one company's scandal pulls down an entire industry. The business has not changed, but the price drops. That is exactly when patient investors step in to buy.
10. What is the P/B ratio and how does it help find undervalued stocks?
P/B ratio compares a stock's price to the company's book value. A P/B below 1.5 often means the stock is trading near or below its actual asset value. Many PSU banks in India trade at a P/B below 1, which is a common reason they show up in undervalued stock screeners.
11. Can beginners invest in undervalued stocks in India?
Absolutely, but a little homework is needed. Start with large cap undervalued stocks as they are safer. Learn to read the P/E ratio, P/B ratio, and free cash flow. Use a stock screener to filter options. Stick to companies with clean management and invest with a 3 to 5 year mindset.
12. What sectors have the most undervalued stocks in India right now?
PSU banking, energy, pharmaceuticals, and FMCG are the sectors currently known for having the most undervalued stocks in India. Government-owned companies are often underpriced due to market bias against public sector units, even when their financials are performing strongly year after year.
13. What is the PEG ratio and why does it matter for undervalued stocks?
The PEG ratio is the P/E divided by the expected earnings growth rate. A PEG below 1 suggests the stock is undervalued even when factoring in growth. It is a smarter tool than plain P/E because it accounts for how fast the company is actually growing its earnings going forward.
14. How long should I hold undervalued stocks before selling?
Most financial experts suggest holding undervalued stocks for at least 3 to 5 years. The market takes time to recognize a company's true worth. Selling too early is one of the biggest mistakes new investors make. Set a target price based on fair value and let the fundamentals do the work.
15. What is free cash flow and why is it important for finding undervalued stocks?
Free cash flow is the money a company has left after covering its operating costs and capital expenses. A company with high free cash flow and a low P/E ratio is often a strong undervalued candidate. It shows the business is actually making real money, not just reporting accounting profits on paper.
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