Why take the Value Investing approach?

Over the past few years, the way people invest money has evolved, but one strategy called value investing has remained popular. Here’s an overview of value investing along with some of its benefits.

What is Value Investing?

The basic premise of value investing is to buy stocks that have a market price lower than the intrinsic value of the stock.

The intrinsic value of a stock is a technical term that refers to the actual or real value of a stock if market fluctuations are not taken into consideration.
Value investors believe that the market price of a stock and the intrinsic value of the stock will eventually converge. Hence, if an investor has bought a stock when it was trading at a lower price than its intrinsic value, they have a higher likelihood of gaining better returns when the market price catches up to the intrinsic value.

Value is one of the core factors that investors consider when utilizing factor-based investing strategies. The other factors are momentum, quality, and low volatility.

Why Choose Value Investing?
There are several advantages to value investing that investors can consider:

It is a Diversifier:
Value investing works across different markets and different asset classes. It has less correlation with quality / growth stocks, thereby when blended, it can offer diversification to investors’ portfolio. Investors can also use these strategies to build a diversified portfolio.

Contrarian Approach:
Value investing strategies can result in a contrarian approach. Value investors usually buy when the overall market trend is bearish, and sell when the overall market trend is bullish. This is because stocks are available at a better price during bear markets and are overvalued during bullish runs.

Weathering Market Cycles
Value investing is age old factor that is well researched. According to various literature value works well during recovery and bull phase. Investors can use value into their broader factor portfolio to weather different market cycles.

Potential for better capital appreciation:

Investing in value stocks may help investors realize returns over longer term.

For example, the Nifty500 Value 50 Index that tracks the performance of the top 50 value stocks. It has delivered a CAGR of 17.2% since September 2005. In comparison, the Nifty 500 has experienced a lower CAGR of 14.5%. Further, the Nifty500 Value 50 Index has outperformed the Nifty 50 in 10 out of the past 19 calendar years.

Value investing can provide an attractive investing approach though investors should remember that past performance does not guarantee future returns.

Can Help with Long-Term Wealth Creation

Value investing relies on metrics such as price-to-earnings, price-to-sales, and price-to-book. These metrics can help investors find stocks trading at bargain prices compared to their intrinsic value.

Value investors believe that the market value of a stock will eventually converge with its intrinsic value. Hence, it may turn out to be an appropriate strategy to create long-term wealth.

Taking a Passive Approach

Value investing may sound too complicated to many investors. After all, not every investor has the time or inclination to understand the nitty-gritty of value investing and spend years building their understanding of the markets.

For such investors, investing in a passive fund that is built around value investing may be a good option. Investors can either invest in an index fund or in an exchange-traded fund (ETF) depending on their preferences.

Passive value investing can provide a ‘True to Label’ and rule-based investing method that is free from emotional bias, is completely transparent, and is cost-effective.

Wrapping Up

Value investing is an old investment philosophy that is still relevant today. Value is one of the four factors that factor-based investing relies on. It is worthwhile for investors to learn about value investing and consider applying these techniques to their investment portfolios.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager:

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Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.