Value Investing Gaining Traction Amid Market Caution..

Varahimedia.com,Hyderabad,May 6th, 2025: The Indian equity market is currently navigating a phase of cautious optimism. While many companies have reported steady growth in revenue for the last quarter of FY25, geopolitical tensions and the broader implications of the ongoing tariff war have kept investors on high alert.

In this market landscape, large-cap stocks are emerging as more favorable investments, offering a better risk-reward ratio, especially as mid- and small-cap stocks continue to trade at valuations above their historical averages.

As we look ahead, stock selection based on execution quality and margin trends will be essential, marking a shift from broad-based rallies to a more selective, opportunity-driven approach.

In such an environment, value-based equity funds, which focus on stocks with attractive price-to-earnings (P/E) ratios and strong growth fundamentals, may present a safer investment strategy.

Value funds typically invest in stocks that are priced below their intrinsic value, often due to negative market sentiment or mispricing.

These funds target companies with solid fundamentals, such as stable earnings, strong cash flows, and consistent performance, while adopting a long-term investment perspective and anticipating eventual market re-rating.

“After the recent surge in the markets, we expect the focus to shift back to quality and consistent compounders.

We believe that domestic-facing sectors such as financials, utilities, energy, cement, petrochemicals, services, and defensive FMCG will deliver more stable returns in a world dealing with tariff constraints,” said Sonam Udasi, Fund Manager at Tata Asset Management.

Over the past year, the value investing theme has performed strongly in the Indian market. This growing preference for value stocks is reflected in the sharp rise in assets under management (AUM) of value-focused mutual funds.

For example, the Tata Equity P/E Fund saw its AUM increase to Rs 8,004 crore as of March 31, 2025, up from Rs 7,301 crore the previous year. The fund also received gross inflows of Rs 884 crore in FY25, nearly 83% higher than the Rs 484 crore recorded in FY24 (Source: Internal data).

The Tata Equity P/E Fund, managed by Udasi, has provided a 3-year return of 19.2%, outperforming both the Nifty 500 TRI (13.9%) and the Nifty 50 TRI (11.8%). A monthly SIP of INR 10,000 over five years would have grown to INR 9.2 lakh.

The fund allocates at least 70% of its net assets to equity shares of companies with a rolling P/E (based on the last four quarters’ earnings) lower than that of the BSE Sensex. The portfolio dynamically adjusts its exposure based on market cycles, stock valuation, company size, market capitalization, and a company’s future growth potential.

For long-term investors, especially those with a horizon of three years or more, value funds offer a disciplined, risk-adjusted approach to accessing value-driven growth.

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