Discover expert insights on whether to invest in value or growth stocks amid the current optimism in the Indian stock market. Learn how to balance stability and potential returns with diversified strategies tailored to your financial goals.
The recent surge in the Indian stock market, driven by expectations of political stability and policy continuity, has prompted many investors to reassess their investment strategies, particularly when choosing between value and growth stocks.
The debate between value and growth investing is long-standing, with each approach having its own set of merits and risks. Notable investors like Warren Buffett, Charlie Munger, and Benjamin Graham have always advocated for value stocks. Conversely, successful investors like Jim Simons, Peter Lynch, Philip Fisher, Ron Baron, and Cathie Wood have achieved remarkable success by focusing on companies with strong growth potential.
Understanding Value vs. Growth Stocks
Value Stocks: Stability and Bargains
Value stocks represent shares of companies that appear to be priced lower than their true worth. These companies usually have stable finances, steady earnings, and low valuation measures. Value stock investors look for bargains—stocks that are temporarily unpopular or ignored by the market, hoping their true value will eventually be recognized, leading to price increases. These investors are often conservative and prefer stable investments.
Growth Stocks: High Potential and Volatility
Growth stocks, on the other hand, are shares of companies expected to grow faster than average in the future. These companies reinvest their profits into areas like research, market expansion, or acquisitions instead of paying dividends. Growth stocks typically have higher price-to-earnings (P/E) ratios because investors are willing to pay more for the promise of future growth. These stocks can provide significant returns during strong market periods but may be more volatile.
Mixed Strategies and Market Sentiment
Many investors adopt a mixed strategy, combining both value and growth stocks in their portfolios for diversification. This approach ensures the stability and income from value stocks while also capturing high returns from growth stocks. Growth at a reasonable price (GARP) is a popular approach that blends these strategies.
Currently, the Indian stock market is teeming with positivity. Despite short-term volatility, expectations are high that the market will yield healthy returns in the medium to long term. With both value and growth stocks appearing poised for growth, deciding which to favor can be challenging. To gain insight, we consulted several experts on their preferences.
Expert Opinions on Value vs. Growth Stocks
Deepak Jasani, Head of Retail Research, HDFC Securities
Deepak Jasani notes that growth stocks can deliver substantial returns during bull markets but may be more volatile. He suggests a blended strategy incorporating both value and growth stocks in portfolios for diversification. This approach combines the stability and income generation of value stocks with the growth potential of growth stocks. A popular hybrid strategy is growth at a reasonable price (GARP).
Investment choices may shift based on prevailing market conditions and economic outlook. During periods of economic uncertainty, investors might lean towards value stocks for stability, while in bullish markets, they may favor growth stocks for capital appreciation. The final choice depends on an investor’s financial goals, risk tolerance, and market outlook. Sometimes, growth stocks turn into value stocks (e.g., IT services stocks now good dividend plays with lower P/E ratios). Similarly, rail stocks that were earlier value stocks are becoming growth stocks due to the government’s focus on railway modernization and expansion.
Sunil Damania, Chief Investment Officer, MojoPMS
For Indian investors considering the medium term, Sunil Damania suggests focusing on growth stocks might be more advantageous. India’s youthful demographic and robust economic expansion favor growth-oriented investments. Mid- and small-cap stocks often outperform large-cap stocks and exemplify this growth potential, offering significant capital appreciation. India’s higher P/E ratio than other emerging markets indicates strong investor confidence in future growth.
Despite the historical outperformance of the MSCI India Value index, India’s economic environment and market dynamics suggest that growth stocks could offer superior returns in the medium term.
Vaibhav Porwal, Co-founder, Dezerv
Vaibhav Porwal advises investors to be cautious about investing in momentum or small-cap stocks, which have been overheated over the past two years. Sustained sideways or downward movement in momentum stocks can trigger a sell-off. Investors should consider the risks involved before making such investments. However, a steep market fall without any structural change in the fundamentals should be regarded as an opportunity for fresh equity investments.
Siddharath Arora, Director and Head of Products & Research, Equirus Wealth
Siddharath Arora emphasizes that both value and growth stocks are important for an investor’s equity portfolio. He suggests a healthy blend of growth and value stocks, with the percentage allocation depending on the investor’s risk appetite. Given the higher volatility of growth stocks in the short and medium term, considering the investor’s time horizon can help create a portfolio better suited to their profile.
Ajit Mishra, SVP, Research, Religare Broking
Ajit Mishra points out that India’s economy is set to grow, driven by government initiatives in infrastructure, manufacturing, and the digital economy, which may benefit growth stocks. Recent market trends and valuation levels indicate a mixed scenario, with some growth sectors appearing overvalued and traditional sectors offering undervalued opportunities. For the medium term, a balanced strategy could be wise, diversifying portfolios to include both value and growth stocks to mitigate market volatility and capture potential growth.
Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities
Apurva Sheth recommends preferring safe value stocks over the medium term due to potential volatility. Despite elections being concluded, political uncertainty remains, especially with BJP leading a coalition government for the first time in a decade under Narendra Modi’s leadership. Additionally, upcoming elections in the UK and US could add to global volatility. Therefore, value stocks from the FMCG, pharma, and IT sectors might be preferred over high-growth stocks from capital goods or engineering sectors.
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Conclusion: Tailoring Your Investment Strategy
As India strengthens its position in the global IPO market, the debate between value and growth stocks continues to be relevant. Each investment approach has its own merits and risks, and the choice between them depends on individual financial goals, risk tolerance, and market outlook.
Investors should keep a close watch on market conditions and adjust their strategies accordingly. A diversified portfolio, combining both value and growth stocks, can help balance stability and growth potential, providing a robust approach to navigating the dynamic Indian stock market.
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