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India and value investing

We asked Mrinal Singh who manages ICICI Prudential Value Discovery Fund what place value investing has in the Indian context

India and value investing

Mrinal Singh, Deputy CIO - Equity, ICICI Prudential AMC manages ICICI Prudential Value Discovery Fund. With assets of Rs 11,664 crore as of March 2020, this is the largest mutual fund among those that follow the value strategy.

Since India is widely thought to be a growth market,we asked Mrinal Singh to share his view on the place that value investing has here. We also asked him to describe the attributes of a value stock.

Mrinal Singh:

Value is the difference between the intrinsic worth of a business and the price an investor is paying for that investment. In general, value investing is about maintaining a high margin of safety. This does not mean investing solely based on an optically low price-to-book or price-to-earnings alone.

While growth remains one of the major styles of investing in India, there is room for value investors here as well. This can be seen through the long-term track record of ICICI Prudential Value Discovery Fund. Over a decade, the fund has been a wealth creator and has delivered a CAGR of 10.13 per cent and over 15 years, the fund has delivered a CAGR of 15.3 per cent (as of April 13, 2020).

The difference between a value and growth investor is the point of beginning. A growth investor is interested in zones of certainty, while a value investor is interested in the margin of safety (given that they operate in the zones of uncertainty). Therefore, when value calls play out, exponential gains are made.

From an investor's perspective, in an up-trending or a momentum market, value performance is likely to take a back seat. That is why in value investing, patience is a prerequisite to reap gains. An investor should stay put with their investments whether through SIP or otherwise for at least five years plus. Rolling-return analysis shows that if one remains invested for seven to 10 years, the probability of making double-digit compounded returns is very high. As value gets unlocked, investors will be beneficiaries of exponential gains from these investments.

A combination of inexpensive valuation, cash-generation capability, strong management and a comfortable balance sheet are the attributes we look for when it comes to picking a value stock.