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One can find value beyond overheated growth stocks

In value investing, investors look to buy under-priced stocks with healthy growth prospects.

, ET Bureau|
Nov 25, 2019, 07.59 AM IST
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Fund managers said it would be difficult to say when these stocks would turn around as the market is now focusing on companies that are growing despite steep valuations.
The Sensex and the Nifty are trading near their all-time highs, but there are a few stocks beneath the surface that remain under-priced. While valuations, measured by the P/E ratio, of the benchmark indices are rich, there are several stocks that are currently trading at a discount to their five-year average P/Es. ET has compiled a list of 21 such stocks with a return on equity (RoE) of at least 12%, consistent growth in sales and operating profits in the last five years and are tracked by over 15 analysts.

Fund managers said it would be difficult to say when these stocks would turn around as the market is now focusing on companies that are growing despite steep valuations. Fund managers, like HDFC Mutual Fund’s Prashant Jain, prefers value stocks over growth stocks. “Growth returns are temporary, but value investing would give good returns over a period,” said Jain, CIO of HDFC Mutual Fund. In value investing, investors look to buy under-priced stocks with healthy growth prospects; while in growth investing, the focus is on stocks that are growing, though they need not be cheap.

“Since most people are very short-term focussed in the market, they want to avoid short-term pain and get short-term gains. So, when almost everyone wants to buy certain stocks in the markets, it is obvious that rest of the spaces tend to become more value,” said Jain.

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