Queries about investing in value stocks are doing rounds in the wake of Nifty’s 15% growth that has seen it rebound from March’s lowest prices. The Indian benchmark stock market index rallied strongly to traverse the 18,000 mark before bulls booked some profits moderating the asset to a 17,784 closing price at the end of the week. Nifty met a strong rejection around the 18,100 price level and ended the day with a shooting star, pointing to a decline in buying pressure and a gradual takeover of short-sellers.
Markets have pushed skywards over the past two years, defying economic threats such as the Covid 19 pandemic that choked most economies around the world. Although inflation has slowly continued to grow, the value stocks sector has not had a notable losing streak since the start of the pandemic.
Valuation and earnings are favoring value stock indexes. MSCI India Value Stock closed 2021 with a 32% gain, outperforming MSCI India Growth Index by a whopping 23%. After two years of a continuous rally, the question many investors are asking is whether the asset will remain bullish for the third year or not. Even though value stocks posted good profits, they are still more affordable than growth stocks. Investors will stick to more affordable assets any day as long as there is an assurance of a good return. More important is that the future projections of value stocks show they will outpace growth stocks.
From our desk, value-style investing normally benefits from an expanding macroeconomic environment. India’s economy is poised to continue strengthening over the next 12 months. The RBI recently held interest rates at 4% indicating that the economy is still stable enough to warrant a rate hike. However, India’s Reserve Bank remains on the lookout to monitor the economic trend, even as traders expect a possible interest rate rise in August 2022. Inflation on the other hand has already surpassed the central bank’s comfort zone, an indication that we may see bond prices spiking up in the next few months. If historical technical analysis is anything to go by, the past ten years have proven that there is a natural positive correlation between the behavior of bonds and value stocks. Anytime the government 10-year security yield has gained value, the MSCI value index has followed.
Overall the above factors create a conducive environment for a thriving value market in 2022. Information technology was the key driver of growth in this sector back in 2021. 2022 looks like it will likely get a bigger injection from the financial sector as individuals and companies race for credit facilities to stimulate post covid growth. Higher interest rates anticipated in the next four months will give an additional boost. With the current reflationary environment, the Public Sector Enterprise (PSE) could end up unlocking significant growth opportunities too.
In addition, more and more demand is caused by the so-called binary options. On the pocket option the minimum deposit is usually a few tens of dollars.
Though our analysis shows that value investing is likely to yield more than growth stocks in 2022, we advise investors to exercise caution and follow proper portfolio diversification techniques. This article is not to be taken as financial advice of any kind. Seek the service of a professional financial advisor before acting on any information you picked from our article.
