Value vs Growth: What will work for stock investors? BT Digital Diwali Survey decodes

Even as the BT Digital Diwali Survey sees the market hitting new highs in Samvat 2079, a majority analysts believe investors would be better off investing in either pure 'value' style of investing or by 'buying growth at a reasonable price' over the next one year.  

In value style of investing, investors tend to buy stocks that they believe are undervalued. In growth style of investing, investors chase companies that offer strong earnings potential, but are deemed overvalued in terms of valuations.  The market chases growth during expansionary phase while value is more preferred during contractions, said Vinit Bolinjkar, Head Of Research, Ventura Securities.

Analysts preferring pure 'value' style of investing included Shrikant Chouhan of Kotak Securities, Vinod Nair of Geojit Financial Services, Sunil Nyati of Swastika Investmart and Sumit Chanda JARVIS Invest. There were a plenty other analysts who batted for a blend of both growth and value. They included Surjitt Singh Arora of PGIM India Portfolio Management Services, Siddarth Bhamre of Religare Securities, Deepak Singh of Reliance Securities and Mohit Nigam of Hem Securities.

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"Growth stocks are preferred by fortune tellers, who can, say, foresee Asian Paints' ability to be the market leader in the paints segment," said Deepak Singh, Chief Business Officer at Reliance Securities said, adding that value stocks are preferred by bargain hunters, who believe Tata Power, for example, will create a whole ecosystem of charging in the future and are trading at a discount.

"As a result, I believe people should opt for both of these style of investing.," Singh said.

Surjitt Singh Arora, Portfolio Manager at PGIM India Portfolio Management Services said he follows the philosophy of growth at reasonable price (GARP) which is a simple and time-tested for many years.

"While investing in equities is for growth, equally important is the price one pays for growth. GARP philosophy balances the two tenets of investing i.e. Growth and Value. Historically, we have seen the markets swing between extremes of optimism and pessimism, wherein we have seen approaches like growth at any price or focusing excessively on price to book value. GARP can help in avoiding extreme overpricing as well as avoiding value traps," Arora said. 

Siddarth Bhamre of Religare Broking said Indian markets attract investments for its growth and that there are numerous examples where value stocks have languished for a decade. "The current volatility may offer high growth stocks at reasonable valuation and that’s the space we by default always try to be in," he said.

Chouhan of Kotak Securities prefers value. He believes consumption-driven sectors, both staples and discretionary, to outperform the market. He likes banks on retail demand revival and corporate resolutions. Besides, Chouhan likes Specialty chemicals, auto sector and pharma sectors. Sumit Chanda of JARVIS Invest also prefers value, given interest rates are in an upward trajectory.

Samvat 2078 was a year of peaks and troughs with a roller-coaster ride in the equity market across the world. Since the last Diwali, the market has witnessed significant volatility led by liquidity reversal, policy tightening, the Russia-Ukraine geopolitical crisis, and rising inflation, analysts noted.

In the last year, said Neeraj Chadawar of Axis Securities, the market experienced quicker rotation in investment style and sector preference and that the value theme dominated the first half of the Samvat 2078 that exhibited a rising inflationary period.

In the second half, however, the market saw a pickup in the Growth theme, which was led by a cool-off in commodity prices, robust domestic demand, and reasonable valuation after the market correction.

Sunil Nyati, Managing Director at Swastika Investmart said value stocks are witnessing some signs in terms of revival after a decade-long underperformance.

“In case the indices give a flattish performance in the coming year, value stocks should generate higher investor interest. Economy-facing stocks are poised to do well in coming years and we are positive on sectors like banking, infrastructure, housing, real estate, and capital goods," he said.

Meanwhile, for Sanjay Chawla of Baroda BNP Paribas Mutual Fund, India has and will always be a growth market. Value theme will play out in times of prolonged bear or sideways phase, says Deepak Jasani of HDFC Securities, who does not foresee such developments as of now.