The investor argued strongly that following a value strategy in India could be more lucrative. To support his point, he presented data from the MSCI India Value and MSCI India Growth indexes over 3, 5, and 10-year periods. In each case, the Value index outperformed the Growth index. He was confident that this trend would continue in the future.
I, however, see India as a growth market. To support my view, I highlighted several points. Firstly, in India, mid- and small-cap stocks often outperform large-cap stocks. These smaller companies are typically in their growth phases, whereas large-cap companies are more mature with limited potential for significant capital appreciation, aligning more with a value strategy.
Another data point I shared is the higher price-to-earnings (P/E) ratio in India compared to other emerging markets. Despite this, the Indian market continues to outperform. This suggests that investors are willing to pay a premium for Indian companies due to their promising growth prospects. Higher P/E ratios are indicative of growth companies, as investors are willing to pay more for faster growth.
I also pointed out the difference in dividend yields. Value companies typically offer higher dividend yields, while growth companies either don’t pay dividends or have much lower yields. When comparing India to other emerging markets, India’s dividend yield is significantly lower, reinforcing the growth market argument.
Another perspective I shared is the demographic factor. Older investors often prefer higher dividend yields for steady income, while younger populations, like India’s, seek capital growth. This youthful demographic leans towards growth investments.
However, I acknowledged that even growth markets can exhibit value market characteristics at times. During periods of market uncertainty, investors may adopt risk-off strategies, favouring the stability of well-established value companies. Conversely, when investors are optimistic and willing to take on risk, growth strategies tend to excel.
As a growth investor myself, I focus on companies poised for significant growth, aiming for higher returns despite the higher risk. A growth strategy doesn’t require every investment to succeed; even a few high-performing companies can yield substantial returns. Conversely, value investments can sometimes be value traps, remaining undervalued for extended periods and generally not offering market-beating returns.
To further my argument, I pointed out that while MSCI India Value may have performed well, globally, MSCI Growth has outpaced the Value index significantly over five and ten years. Iconic growth companies like the “Magnificent 7” in the US, including Nvidia, which surged 200% in the last year, highlight the potential of growth investing. Nvidia’s price-earnings ratio is more than 200x!
Despite our spirited discussion, the investor remains unconvinced and promises to return with more data points. So, the debate continues.
(The author is Sunil Damania, Chief Investment Officer, MojoPMS)
