Value stocks back in the game as growth cos lose lure

Mumbai: Investors with a fancy for beaten-down stocks are back in the game. Value stocks have bounced sharply in 2021 so far, ending a decade-long losing run that had a section of the market assert that this style of investing is dead.The MSCI India Value index has gained 18% since January as against the 9% advance in the MSCI India Growth Index — the outperformer in the past decade. Growth investing focusses on companies that are steady performers, while value investors look for stocks that are trading below their actual value that are often beaten down. Growth stocks tend to be more expensively valued than value names.Between 2010 and 2020, the MSCI India Value index underperformed the Growth index by 50%.In India, PSUs, energy, banks catering to industries, financials, materials, infrastructure and commodities have been categorised under value stocks. Fund managers say with profitability of growth companies such as consumer and retail banks under pressure after the second wave of Covid-19, investors are now looking at the beaten-down value stocks. 83420434"Various companies under utilities, energy, several PSUs, EPC are below long-term averages while companies under consumer-oriented sectors are higher,” said Prashant Jain, CIO, HDFC Asset Management Company.The comeback of value stocks has catapulted schemes handled by Jain, a veteran fund manager known for being a backer of the value style of investing, to top of the charts this year.These schemes have been struggling when growth stocks were outperformers.“Higher commodity prices, end of the corporate NPA cycle, opening up of the economy in the West and in India, focus on infrastructure are supportive of some of the sectors that lagged during the lockdown and it will be interesting to watch the course that markets take,” Jain added.Value strategy started to gain major traction since October last year with small-caps, mid-caps, PSUs, commodities, utilities, metals, and corporate banks starting to outperform. The Nifty Metal index rallied 61% so far this year, while Nifty Commodities and PSE indices gained 37% and 34%, respectively. Nifty Infra and Energy indices have gained 23% each since the beginning of the year. The Nifty rose 13% while Nifty FMCG and Consumption indices gained 4% and 7%, respectively, since January1.“Value stocks have come back after a long time triggered by the bounce-back in commodity prices, government push on infra spending, incentives for manufacturing, and shift in disinvestment programme from stake sale to strategic sale,” said Gautam Duggar, head of research at Motilal Oswal Financial Services. “Sector rotation is visible currently as money is moving from growth to value stocks due to improving economic outlook.”Metals, energy, banks, and financial sectors, as well as other commodities are the sectors with the largest increases in analysts’ earnings estimates over the past six months. Analysts say earnings upgrades have driven up share prices.Fund managers say there is still room for value stocks to move up as valuations are still below averages. MSCI India Value index is currently trading at a trailing Price-to-Earnings (PE) ratio of 28 times and of 18 times one-year estimated earnings. The 10-year average PE is 30 times. MSCI India Growth is trading at a PE of 41 times trailing 12-months and 30-times forward earnings. The 10-year average PE is 58 times.Jain of HDFC MF said the market at an aggregate level is still reasonably valued especially given the low cost of capital.

from Economic Times https://ift.tt/3pJbpWv