Heard of bargain shopping, but in the markets? How about getting to pick stocks at discounted prices? Learn all about Value Investing in this episode.
[00:00:00] Welcome to Axis Moneynomics, Axis Mutual Fund
[00:00:03] Have you ever waited for the perfect discount before buying something you really wanted?
[00:00:08] Maybe a new smartphone or a flight ticket?
[00:00:12] Well, who doesn't like discounts?
[00:00:14] In the world of investing too, we have the value investing style that works in a similar way.
[00:00:20] It's all about getting something valuable at a price lower than its expected worth.
[00:00:25] Today, we are going to break it down with our guest, Vandana Trivedi, who heads institutional business and passives at Axis Mutual Fund.
[00:00:43] Hello and welcome to yet another exciting episode of Axis Moneynomics.
[00:00:50] This is Hari from Axis Mutual Fund.
[00:00:53] And bear with us, Vandana, to help us dive deep into value investing.
[00:00:59] Hey Hari, thanks for having me here.
[00:01:02] Vandana, let's start with the basics.
[00:01:05] Value investing sounds a lot like bargain shopping, Vandana.
[00:01:08] How would you define it for someone who is very new to the stock market?
[00:01:12] Yes, absolutely. It is very much like bargain shopping, especially in the world of festive discounts that you're going through right now.
[00:01:20] Value investing is all about finding stocks that are undervalued.
[00:01:24] That is, stocks that are trading at prices lower than their intrinsic value.
[00:01:30] So just like when you spot a great deal on a laptop that you know is actually worth more,
[00:01:35] Value investing aims to do the same.
[00:01:37] In value investing, we aim to buy these stocks and hold on to them until the market realizes their potential worth.
[00:01:45] This strategy, therefore, focuses on strong fundamentals rather than mere short-term market trends.
[00:01:53] So, Vandana, is it really about identifying good companies that sort of seem to be underpriced at this moment?
[00:02:00] Exactly Hari. And it's not about following the crowd. Value investing often takes a contrarian approach.
[00:02:08] When others might be selling because the market is down, value investors are often buying, knowing that in the long run, the stock has potential to increase in value once the market corrects itself.
[00:02:23] Alright, so value investing really focus on the long term. But what are the key principles of value investing, Vandana?
[00:02:30] Hari, value investing is built on two key principles. The first is research.
[00:02:36] Value investing as a strategy digs deep into a company's financials and fundamentals, studies industry trends, and analyzes long-term prospects to ensure that the value picks have long-term potential.
[00:02:52] The second big principle is of course patience Hari. Value investing is not for quick wins.
[00:02:59] It's about waiting for the market to catch up and realize the true value of those value stocks.
[00:03:04] Great Vandana. So, essentially you're saying that value investing is not just following the EARD, rather it's a strategy that requires a bit of patience and research.
[00:03:16] Vandana, we have been hearing about value as a strategy for quite some time. Why do you think it is so popular?
[00:03:24] That's right Hari. Value investing is in fact one of the oldest and proven strategies out there. It was formalized way back in the 1930s and it has been used by some of the greatest investors in history.
[00:03:37] In India, as per NST and as of August 30th, 2024, the Nifty 500 value 50 index, which tracks the top 15 value stocks in India, has delivered a CAGR of about 17.2% since 2005.
[00:03:52] Now compare that with the Nifty 500, which is the broader market index, which posted a CAGR of about 14.5% for the same period.
[00:04:02] Wow, that's really impressive Vandana. But I have this question in mind Vandana, when it comes to selecting the stocks, what are the metrics that are used to do in the value strategy?
[00:04:13] Value investing uses many metrics, Hari, to identify undervalued stocks. Some of them are like, say for instance, the price to earnings ratio, which compares a company's stock price to its earnings.
[00:04:25] Therefore, a low P-E ratio can indicate that the company is undervalued. The price to book ratio, which measures the company's market value to its book value, is another metric that is used by fund managers while picking up value stocks.
[00:04:39] Therefore, again, a low P-E ratio means the stock is undervalued. The third important metric that fund managers look at is what is called as dividend yield.
[00:04:48] Dividend yield is the amount a company pays in dividends each year relative to its stock's face value. And again, a consistent dividend yield is considered good for the company. So these are some of the key metrics, Hari.
[00:05:02] That's really insightful, Vandana. I think it's time to understand from an audience and an investor perspective, what are the benefits that value investing offers? Could you please shed some light on this?
[00:05:14] Sure, Hari. See, you would have guessed that yourself. By now, there are several benefits that make value investing very attractive. Firstly, when you buy stocks at a discount to their expected inherent value, there is a relatively lower risk than buying them at, say, higher levels.
[00:05:30] This also gives greater potential for returns if and when the stocks actually end up gaining. Another benefit, of course, is that it can protect investors from getting caught in so-called market trends.
[00:05:43] All right. So far, we have discussed about what value investing is all about. And you also emphasized on the fact that it requires patience and staying for the long term.
[00:05:54] We also talked about the benefits that value investing offers. The next relevant question, Vandana, is obviously for all our investors, who is the right audience in terms of an investor?
[00:06:06] Who is the right person to invest in these kind of strategies?
[00:06:09] Great question, Hari. Value investing is ideal for long term investors who have the patience to wait off market cycles. It may work for those who are not faced by short term market fluctuations.
[00:06:21] This strategy isn't about making quick profits. It is about letting the market recognize the true worth of the stocks that you hold over time.
[00:06:33] Secondly, value investing is also well suited for investors who prefer a disciplined approach to stock selection based on companies' financials, fundamentals, earnings and overall stability rather than mere market trends.
[00:06:47] Definitely, Vandana, I think that makes a lot of sense. But again, an important question that I wish to ask you is that while people might understand what this strategy is all about, but they may not have the time or the expertise to pick these businesses or stocks.
[00:07:02] So, in that case, what do you suggest?
[00:07:05] I am glad you asked this, Hari. For them, we have the Axis Nifty 500 Value 50 Index Fund. This fund is designed for investors who want to benefit from value investing without having to research and pick individual value stocks themselves.
[00:07:21] This sounds interesting, Vandana. Can you tell us more?
[00:07:25] Yeah, of course. So, this is a passive fund, Hari. It tracks the Nifty 500 Value 50 Index, which focuses on the top 50 value stocks in India across large, mid and small cap companies.
[00:07:38] Given that it is a passively managed fund, it has no need for active stock selection. Therefore, for those aiming for cost efficient long term wealth creation potential, this fund is a great entry point.
[00:07:52] Thank you so much, Vandana. This has been an incredibly informative session. For all our listeners, if you are looking to build a long term portfolio through value investing, the Axis Nifty 500 Value 50 Index Fund is something you should definitely consider.
[00:08:08] Thanks for having me, Hari. It has been a pleasure.
[00:08:11] Do make note of the fact that this is an equity fund and comes with very high risk. Investors should consult their financial partners, if in doubt, about whether the product is suitable for them.
[00:08:23] Alright, that is for today. Thank you for listening. If you found this episode valuable, do follow Axis Moneynomics. And never forget to share it with anyone who is keen on investing.
[00:08:36] Until next time, this is your host, Hari signing off.