The SML plot of Sensex conveys that 7 of the Sensex stocks are undervalued and rest 23 of them are overvalued. Most of the undervalued stocks are from defensive and rupee sensitive space such as IT, Pharma and Auto. Vist http://www.finalaya.com/Secure/SecurityMarketLine.aspx to explore more.

1. Finalaya – Security Market Line
The concept of security market line is useful in determining whether an asset being considered for a
portfolio offers a reasonable expected return for risk. Individual securities are plotted on the SML
graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because
the investor can expect a greater return for the inherent risk. A security plotted below the SML is
overvalued because the investor would be accepting less return for the amount of risk assumed.
The SML plot of Sensex conveys that 7 of the Sensex stocks are undervalued and rest 23 of them are
overvalued. Most of the undervalued stocks are from defensive and rupee sensitive space such as IT,
Pharma and Auto.
On the Nifty front, the SML plot suggests that 9 of the stocks lie in undervalued zone and rest in the
overvalued territory. The undervalued over here as well are from the defensive and rupee sensitive
spaces.
SML tool http://www.finalaya.com/Secure/SecurityMarketLine.aspx can be used for more analysis on
another index, industry or any custom list.