HDFC Bank, 18 Other Fallen Angels Could Be Dalal Street’s Next Winners

Elara Sees Market Leadership Shifting Towards Beaten-Down Stocks

The brokerage’s “fallen angels” thesis rests on earnings recovery, not simply on stocks trading well below their peaks.

A defined screen narrows the fallen-angel universe

Elara’s “fallen angels” are NSE 500 stocks that are at least 25% below their three-year market-capitalisation peak, have underperformed the index by at least 15 percentage points over the preceding 12 months, and have a return on equity of 15% or lower. The category is therefore based on both a sharp relative decline and a profitability measure. It is distinct from “market movers”, the high-momentum, high-ROE stocks that led during the previous phase.

From 132 companies that met its broader screen, the brokerage selected 19. Examples among large-caps include HDFC Bank, Avenue Supermarts, LTM and HDFC Life; its mid-cap names include Godrej Properties and ITC Hotels, while Kaynes Tech, NCC and Sobha feature among the small-caps. The selection spans market segments, but inclusion in the basket is a research view, not an assurance of recovery.

Earnings resilience underpins the contrarian case

The brokerage’s market outlook follows a correction in Indian equities from the September 2024 peak to the October 2026 low. Elara argues that global conditions, rather than a significant weakening in domestic fundamentals, were the larger driver of the decline. That distinction matters: if earnings remain sound, price weakness may create an opportunity; if profits deteriorate, a lower valuation may instead reflect a lasting change in prospects.

Reported results offer one support for the thesis. PAT at 395 NSE 500 companies that reported Q2FY27 results rose 27.5% year on year. Elara also found that fallen angels that subsequently delivered strong PAT growth, margin expansion or a larger share of the NSE 500 profit pool outperformed the index in about 75% of cases. The comparable figure for the average fallen angel was 57%, underscoring why earnings evidence—not just a steep drawdown—matters.

The valuation gap is near past bottom levels

Market movers trade at 44 times trailing earnings, against 29 times for fallen angels, according to Elara. The resulting 1.5-times valuation premium is close to the historical median of 1.6 times around previous market bottoms. The brokerage also points to negative NSE 500 returns over the preceding 12 months and a rise in the number of fallen angels from 61 in April to 80 in October. Their share of the index has increased by four percentage points to 16%.

These measures support a possible change in leadership, but do not establish that a market bottom is in place. A valuation discount can persist if earnings expectations weaken, while a low ROE may signal challenges that prices alone cannot resolve. Elara identifies a domestic inflation-and-tightening cycle similar to 2011 as the main risk to its thesis.

Staggered entry may reduce the timing burden

Elara’s back-test examined portfolios of 10 large-caps, 10 mid-caps and 10 small-caps bought at month-end from six months before to six months after each market low. Across 78 entry points, positions were held for 12 and 24 months. The brokerage found that 60 stocks beat the NSE 500 over the following 12 months, while median excess returns were positive at 12 of the 13 entry months. Its conclusion is that staggered accumulation around a low could capture outperformance without pinpointing the exact turning point. This is historical analysis, not a guarantee of future returns.

Key Highlights

• Elara selected 19 stocks from a wider pool of 132 fallen angels.
• The screen combines a market-cap peak drawdown, index underperformance and an ROE threshold.
• PAT at 395 NSE 500 companies reporting Q2FY27 results rose 27.5% year on year.
• Market movers trade at 44 times trailing earnings, compared with 29 times for fallen angels.
• Elara’s back-test points to positive median excess returns at 12 of 13 entry months.

Investor Note: Treat the fallen-angel list as a research screen, not a ready-made buy list. Before investing, assess whether each company can restore earnings and margins, and consider the risk that inflation or tighter domestic financial conditions could undermine the recovery.