The year 2011 has been one of the worst years for equities in India. An investor who had put money in 30 stocks which constitute the Sensex in January would have lost 24% by the end of the year.

But despite this sharp decline, valuations of 25 of the 30 Sensex stocks are still trading at premiums to their March 2009 lows. This indicates there is still room for a further slide.

Metals producers and banks were amongst the worst performers through 2011 and given global economic uncertainties, a sluggish domestic growth and relatively tight liquidity, earnings of these companies are not expected to improve in the near term. Hindalco has been the biggest loser amongst the Sensex companies. Despite the 53% decline in its share price, the stock still trades at 10.62 times its trailing 12-month earnings, a significant premium to its March 2009 low of 2.15 times.

Share prices of Sterlite Industries, Tata Steel,Jaiprakash Associates and Larsen & Tourbo currently trade at half their value at the beginning of 2011. Tata Steel and Sterlite are trading at PEs (price to earnings ratio) of 3.43 times and 5.85 times, which are close to their lows of 0.9 times and 3.09 times, respectively.

Jaiprakash Associates and Larsen and Tourbo, on the other hand, are still trading at significant premiums and are expensive, given the concerns in the infrastructure and capital goods sectors.

Valuations of BHEL, Reliance Industries, Maruti Suzuki and NTPC have already fallen below March 2009 levels. However, with low expectations of a strong turnaround in earnings in the near term, no significant improvement can be expected in the share price. These stocks have fallen between 50% and 20% in 2011.

Baja Auto, ONGC, Cipla, Mahindra & Mahindra, Tata Motors are all trading close to their 2009 lows. But unlike other stocks, which have posted negative returns, Bajaj Auto has risen 3%, driven by strong earnings and demand in the two-wheeler segment, thereby justifying its premium.

The FMCG and pharmaceutical companies in the index are also trading at significant premiums to their March 2009 lows, but given the stronger earnings outlook for these sectors, the likelihood of a correction in valuations to March 2009 levels is relatively low.