How this fund manager finds value when markets stall

Summary: As markets move into a calmer, more disciplined phase, this piece explores how one value fund manager looks for opportunity where expectations are low, sentiment is pessimistic and margins of safety exist—and why restraint matters more than bold calls when valuations reset.

Markets today are neither cheap nor euphoric—and that is precisely what defines this phase. Valuations have cooled from earlier highs, sentiment has moderated, and expectations across several sectors are far more grounded than they were a year ago. In such an environment, returns are less about predicting market direction and more about maintaining discipline.

For Dharmesh Kakkad, Senior Fund Manager – MF at ICICI Prudential AMC, that discipline comes from focusing on relative value rather than absolute value. His framework looks at how a stock or sector is priced relative to its own history, return metrics and earnings profile. He prefers situations where pessimism is high, growth assumptions are muted and valuations offer a margin of safety, and steers clear of stocks where expectations are aggressive or difficult to sustain.

Kakkad co-manages the Rs 60,391 crore ICICI Prudential Value Fund alongside Sankaran Naren and Masoomi Jhurmarvala. The fund, the largest in the value category, has delivered roughly seven percentage points of alpha over the category over the past year.

Where value works and where it doesn’t

Kakkad is clear-eyed about the limits of this approach. Value strategies, he says, tend to perform best during broad-based market rallies, when leadership is wide and multiple sectors participate. They struggle during narrow rallies driven by a handful of stocks or a single theme.

“Broadly, the strategy we follow works well during a broad-based market rally. It does not perform as well during narrow rallies driven by a specific sector or a limited set of stocks,” he says, pointing to phases such as 2007–08 and 2017–18, when concentrated leadership left value strategies lagging.

That context matters when evaluating where value opportunities lie today.

Technology: Value born from pessimism

Technology is one area where value emerged when sentiment turned decisively negative six to 12 months ago. At the time, the BSE IT Index had fallen around 15 per cent, growth had remained muted for two to three years and foreign investor ownership had dropped to multi-year lows.

Large-cap IT stocks, however, were trading at unusually attractive dividend and free cash flow yields, providing a margin of safety. Deal wins remained healthy even as near-term growth expectations stayed subdued. With pessimism high and valuations undemanding, the fund built exposure to select large-cap IT names.

FMCG: Positioning for a catch-up

FMCG is another segment where Kakkad sees value after a prolonged period of underperformance. The sector has delivered weak returns for nearly five years, with the index down about 2 per cent in 2025. Subdued volume growth, competition from unorganised players and broader macro pressures weighed on sentiment.

Recent GST cuts have narrowed the cost gap between organised and unorganised players, while companies are refocusing on driving volumes rather than just pricing. With both FIIs and DIIs underweight the sector and valuations looking reasonable, the fund sees scope for a valuation catch-up and has taken an overweight position.

Oil & gas and other opportunities

Value is also visible in oil and gas, particularly among upstream companies, where current crude realisations provide a margin of safety. Oil marketing companies, too, trade at compelling levels and remain under-owned.

Beyond these, Kakkad highlights life insurance as a medium-term opportunity, where GST changes could improve long-term affordability and penetration. He also sees potential in select large private banks, where strong balance sheets and improving asset quality position them to benefit from a cyclical recovery in credit growth.

The underlying message

Across sectors, the common thread is restraint. Value, in Kakkad’s framework, is less about chasing what looks cheap in absolute terms and more about understanding expectations embedded in prices.

In a market that is no longer exuberant but not yet distressed, that distinction matters. Discipline—both in stock selection and in sticking to a process—becomes more important than bold directional calls.

Value works best when discipline drives decisions, not moods.

That’s true for fund managers and for investors.

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