A Beginner’s Guide to Finding Undervalued Stocks in India (Without Complicated Tools)
Have you ever looked at the stock market and thought — “How do people actually find good stocks to invest in?”
If you’re new to investing, terms like P/E Ratio, P/B Ratio, and Dividend Yield can sound intimidating.
But don’t worry — in this guide, we’ll break everything down step-by-step, in simple language, so you can start spotting undervalued stocks in India even without fancy tools or paid platforms.
What Does “Undervalued” Mean?
An undervalued stock is one that is selling for less than what it’s really worth.
Think of it like buying a ₹1000 phone cover for ₹600 during a sale — the value is still ₹1000, but you’re getting it cheaper.
Similarly, in the stock market, if a company’s true worth (intrinsic value) is higher than its current market price, it’s considered undervalued.
Smart investors look for such opportunities because over time, the market usually corrects itself — and the stock price rises to match its true value.
Step 1: Understand the P/E Ratio (Price to Earnings)
Formula:
P/E Ratio = Current Share Price ÷ Earnings Per Share (EPS)
Example:
If a company’s share price is ₹200 and its EPS is ₹20:
P/E Ratio = 200 ÷ 20 = 10
What It Means:
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A lower P/E ratio (compared to industry peers) may indicate that the stock is undervalued.
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But be careful — a low P/E could also mean the company’s growth is slowing down.
Simple Tip:
Compare the company’s P/E ratio with others in the same sector.
For example, if HDFC Bank has a P/E of 20 and another strong bank has 10, the second one might be undervalued — provided its business fundamentals are solid.
Step 2: Learn the P/B Ratio (Price to Book Value)
Formula:
P/B Ratio = Market Price Per Share ÷ Book Value Per Share
Example:
If a company’s share price is ₹100 and its book value per share is ₹80:
P/B Ratio = 100 ÷ 80 = 1.25
What It Means:
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A P/B ratio below 1 often signals an undervalued stock, meaning the market is valuing it for less than the company’s actual net assets.
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But this works best for financial and manufacturing companies, not for tech or service-based firms.
Simple Tip:
Use the P/B ratio to check if the stock price is justified compared to the company’s book value.
If P/B < 1, investigate further — you might have found a hidden gem.
Step 3: Check the Dividend Yield
Formula:
Dividend Yield = (Annual Dividend ÷ Share Price) × 100
Example:
If a company pays ₹5 per share annually and its current share price is ₹100:
Dividend Yield = (5 ÷ 100) × 100 = 5%
What It Means:
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A higher dividend yield means the company rewards its investors regularly.
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But again, be cautious — extremely high yields might mean the stock price has fallen due to weak performance.
Simple Tip:
Look for companies with consistent dividends, not just high ones.
Steady payouts often reflect financial stability and trustworthiness.
Step 4: Combine the Ratios for a Clear Picture
No single ratio can tell you if a stock is undervalued.
You need to look at all three together:
| Ratio | What It Shows | Ideal Range (Generally) |
|---|---|---|
| P/E Ratio | How cheap the stock is compared to its earnings | Lower than sector average |
| P/B Ratio | How cheap the stock is compared to its net assets | Below 1.5 (for value stocks) |
| Dividend Yield | How much income you get from the stock | 2% to 6% (steady is good) |
If all three ratios look reasonable and the company has good growth potential, it could be a solid candidate for your portfolio.
Step 5: Keep It Simple — Use Free Tools
You don’t need paid screeners or complex charts.
Here are some free resources to help you find undervalued stocks:
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Moneycontrol – Check P/E, P/B, and dividend yield in one glance.
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Screener.in – Create free filters like “P/E < 15” or “Dividend Yield > 3%”.
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NSE India – Use official company data directly from the exchange.
Just type the company name on these websites, and you’ll get all the data instantly.
Step 6: Always Check the Company’s Fundamentals
Numbers are important, but they don’t tell the whole story.
Before investing, make sure to check:
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Is the company growing its revenue and profit year after year?
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Does it have low debt and good management quality?
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Is it operating in a stable or growing industry?
Even if the ratios look good, weak fundamentals can turn a “cheap” stock into a “trap.”
Final Thoughts
Finding undervalued stocks in India doesn’t require complicated tools or expert-level knowledge.
By understanding P/E Ratio, P/B Ratio, and Dividend Yield, you can make informed, beginner-friendly investment decisions.
Start small, stay consistent, and remember — in the stock market, simplicity and patience always pay off.
📚 Quick FAQs
Q1. What is the easiest way to find undervalued stocks in India?
You can start with free platforms like Screener.in or Moneycontrol and filter stocks using P/E, P/B, and dividend yield.
Q2. Is a low P/E ratio always good?
Not always. A very low P/E could mean the company isn’t growing or is in trouble. Always check fundamentals.
Q3. Can beginners find undervalued stocks without experience?
Yes! With basic financial understanding and simple ratios, anyone can start analyzing stocks.
Q4. How much money do I need to start investing?
Even ₹500–₹1000 is enough to start through SIPs in mutual funds or fractional shares.
Q5. Should I only buy undervalued stocks?
No. Some great companies are never cheap — focus on quality at a fair price, not just low valuation.
Want to calculate your SIP returns easily? Try our SIP Calculator.
Disclaimer
This article is for educational purposes only. It does not provide financial advice. Always research or consult a certified advisor before making investment decisions.
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