Research house CLSA says stocks have become as cheap as they were during the 2008 global financial crisis (GFC) when compared on a P/B (price-to-book) metric.
The Price-to-book value is defined as total assets minus any liabilities. It is calculated by dividing the share price of a company with its book value per share.
According to CLSA's note, the Nifty index recently hit a low of 1.9x trailing P/B which is close to 18-year lows and at the same level as 2008. In September 2001, the index was valued at a trailing P/B of 1.7x.
However, P/B is only one among many parameters that are considered while valuing stocks.
Another popular metric is the price-to-earnings ratio, on which basis stocks are not close to their 2008 levels.
CLSA says that when compared to 2008, the Nifty is still away from its 2008 levels on both forward and trailing P/E ratios.
The trailing and forward price-to-earnings ratio is arrived at by dividing the price of a stock with its trailing 12-month and next-year forecast EPS. During times of uncertainty, the trailing PE ratio is considered a better valuation metric.
CLSA says that the Nifty's trailing P/E ratio bottomed out at a 7-year low of 14.7x, still far above the GFC level of 9.1x. While the Nifty's forward P/E hit a low of 11.3x compared to 7.6x in 2008
Irrespective of whether valuations are as cheap as 2008, the question that remains is should investors start buying stocks.
CLSA said that while some market indicators -- such as selling intensity and price momentum -- have signalled a bottom. But it added that the volatility indicator states otherwise.
It added that when the market could reach a point on panic selling where there are no buyers left, that is when stocks could bottom.
Further, the market could spend a fair bit of time building a base.
The previous four times the market has fallen more than 40 percent, it took approximately 10-27 months to start a durable recovery, CLSA pointed out.