scenario apt for value funds
We are in an interesting period for investment in Indian equities. We are going to approach the elections and the corporate results for this quarter. In our view, the quarterly results are not likely to be good. Having said that, if we take the long term view, whenever we have been in a situation where GDP growth is low, investing in equities during this period has historically proven to offer good returns.
For instance, 2001-02 and 2002-03 were years of low GDP Growth which offered a good investment opportunity yielding attractive returns. As against this, 2007-2008 and 2009-2010 were the best years to sell equities and book profits. On that basis, the current scenario appears to be a good time to look at value opportunities based on investing for the long term.
Value makes eminent sense considering the fact that currently, there are only about 10-12 stocks which are overvalued. The rest of the market is available at extremely attractive prices. Most fundamentally strong stocks are available at single digit PEs (price to equity) and with price to book below one. We think value is a far bigger opportunity than any other theme at this point of time.
While global challenges will need to unfold based on measures taken by administrations of other countries, domestic challenges, the most compelling one of which is continuation of the reforms process, will crystallize post the 2014 union elections. The positive aspect to the elections in terms of reforms is that both parties, the current government in rule and the opposition, have understood that reforms have to continue in order for the country to retain and nurture foreign interest in the form of FDI and other investment inflows. Hence, using the value strategy in the current scenario makes compelling sense.
The above reasons clearly indicate that the current scenario is apt for locating through sound research value stocks. A better option would be to invest in professionally managed value-styled mutual funds. They would not only help capture the upside that the underlying stocks offer when the market phase changes for the better but