Will value investing now bounce back as market gets broadbased?
Making money in stock investment does involve a significant element of market timing. The two predominant styles of investing are broadly classified as value and growth investing. Speculation about sectoral rotation has been doing the rounds for at least a decade now. Growth stocks consistently outperformed in the last 12 years since the Global Financial Crisis. Value investing , on the other hand, is a long-term strategy. Behind both the styles, the underlying principle is that no one will buy a business if it is not growing.What has happened in the last one year is that most governments have announced huge fiscal incentives to spur their respective economies. Since the onset of the Covid pandemic, which was followed by a series of lockdowns, a number of industries have got disrupted, and a significant number of companies have taken a hit on both their top lines and bottom lines. However, investors believe some of these companies will emerge stronger once the pandemic gets over, and thus they have started investing in such stocks based on their intrinsic values.Remember, value investing is a strategy that involves cherry-picking stocks whose current market prices have fallen below their intrinsic values. Strong fundamental analysis is required to figure this out.Value investing has been the most talked about trend in the current market. This shift in sentiment in favour of value stocks has eventually pushed Nifty and Sensex to their lifetime highs, as the ongoing vaccination drive and renewed hopes of further fiscal stimulus have boosted investor sentiment.It is expected that the value theme will continue to do well, as the economy opens up completely in the second half of CY2021. With GST revenues crossing the Rs 1 lakh crore mark for the fifth time in a row and other macros indicating the likelihood of a swift rebound in economic activity, especially on the industrial manufacturing and infrastructure side, it should lead to further growth in the economy. Besides, earnings of some public sector banks have improved considerably.A combination of stabilisation of earnings or earnings upgrade with the kind of valuation that they are trading at make a compelling case for value investing. Infrastructure, power, steel and cement stocks look promising from a valuation perspective. The market has factored in a lot more than it normally would have, which is just not one or two years earnings but in some cases maybe even three-four years earnings.Investors need to have the patience to let stocks grow to their actual potential. While selecting a company to invest in, one needs to look at operating earnings, because that can show the quality of the core business, which can cause price appreciation in the future. With a host of opportunities ahead, if one goes for value investing and stays put for the long term, one can hope to make healthy returns. (DK Aggarwal is the CMD of SMC Investment and Advisors)