Value Investing Still Works, but Stock Selection Is Key, Fund Managers Say

Fund Managers Put Business Quality Ahead of the Value-Growth Divide

In a market where smaller stocks command higher valuations, investors may need to look past labels and focus on what a business is worth—and whether its prospects remain intact.

Value is a measure, not an investing label

The central message from the summit was that value and growth are not necessarily opposing strategies. Rajiv Thakkar, PPFAS Asset Management’s chief investment officer for equity and director, said investors should compare a company’s intrinsic value with its market price instead of relying on a style label. He cited the firm’s US technology investments as an example of applying conventional valuation to businesses often associated with growth.

The distinction, Thakkar said, often comes down to how far into the future an investor must look to justify a valuation. Growth investing may depend more heavily on earnings and cash flows expected many years ahead; value investing tends to favour greater visibility over nearer-term cash flows. Longer-range projections can be vulnerable to error, making the assumptions behind a company’s expected growth as important as the headline valuation.

A falling price can signal a deeper business problem

A key distinction for investors is whether a correction reflects a temporary setback or a lasting deterioration in a company’s prospects. Lakshmi Iyer, group president for investments and MD & CEO of Bajaj Alternate Investment Fund Managers, said that a stock trading at a discount does not automatically represent value. That caution is particularly relevant when market enthusiasm shifts: a lower valuation may create an opportunity, but only if the underlying business remains sound.

The fund managers also emphasised governance and research. Thakkar said stronger disclosure requirements, regulatory changes and digital transactions have supported improvements, but investors can still be too forgiving of promoters with questionable track records. Prashant Jain, founder and chief investment officer of 3P Investment Managers, said enduring underperformance requires investors to understand both the business and why the market may be discounting it. Conviction, in that view, should follow research rather than substitute for it.

Valuation comparisons bring largecaps into focus

Thakkar put the Nifty 100 at around 18–19 times earnings, against 24–25 times for the Nifty Midcap 150 and 31–32 times for the Nifty Smallcap 250. These index-level comparisons show a valuation gap; they do not, by themselves, establish that every largecap is attractive or every smaller company is expensive. Company-level prospects and earnings quality still matter.

He also said the top 100 companies account for an estimated 65–70 per cent of the profits generated by India’s top 500 listed companies, while domestic money had continued flowing into mid- and smallcap mutual fund categories even as largecap funds saw outflows in some months. Jain said relative performance could mean-revert, but urged investors not to treat all smaller companies alike. For retail investors, the discussion is a reminder to avoid letting recent segment performance or market narratives dictate portfolio choices.

AI adds another test of business durability

Iyer described India’s AI activity as more focused on applications, unlike the US emphasis she outlined on foundational infrastructure and large language models. She said domestic companies had generally funded capital expenditure through cash flows rather than the large-scale borrowing seen in some overseas AI investments, and did not view India’s opportunity as being in bubble territory. That view does not remove the need for selectivity: investors in listed Indian technology companies still need to assess whether AI changes a company’s growth prospects or puts pressure on its business.

Key Highlights

• Value investing centres on the gap between intrinsic worth and market price, not a value or growth label.
• Long-term earnings forecasts can make valuations more sensitive to errors in assumptions.
• A discounted stock is not necessarily undervalued if its business prospects have weakened.
• The Nifty 100’s cited earnings multiple was below those of the Nifty Midcap 150 and Nifty Smallcap 250.
• Fund managers urged investors to assess governance, business durability and company-specific fundamentals across market segments.

Investor Note: Valuation gaps can help frame research, but they are not a substitute for it. Investors may wish to assess cash-flow visibility, governance and the durability of a company’s prospects before treating a price decline or a lower multiple as an opportunity.