Value in Value Stocks

“Be fearful when others are greedy, and be greedy when others are fearful.”

Warren Buffett


Let’s first break the term ‘Market Mayhem’. Here Market means ‘Equity market‘ and Mayhem means ‘Chaos’. Equity market chaos occurs when some rare or major event has happened in an economy. The rare event can be a War, Pandemic etc. Now, if we talk about India, during March 2020, when the Govt. of India announced lockdown due to COVID – 19 pandemic, the Indian stock market saw a huge FIIs selloff of ₹1.18 lakh crore. As a result, BSE’s Sensex fell from 42,270 during February 2020 to 25,630 in March 2020. Everything was the same i.e., fundamentals of the company listed on the exchanges were no different at the time of announcement.

You might wonder, then why suddenly something like this happened in the equity market?

FEAR…….fear of what?………..fear of losing money.

When something unforeseen happens in a particular country. First and foremost thing people do is to have liquidity or cash with them whether its COVID-19 pandemic or Russia-Ukraine War. To have liquidity-in-hand apart from cash-in-hand, you liquidate your investment and equity markets are the quickest way to get liquidity, because of this, masses start to sell and markets fall overnight, but keep in mind, operations of the company are absolutely fine.

What if I tell you that you can take advantage of these temporary or short term chaos in the equity market?

That’s where Value investing comes into the picture!

Value investing is an investment strategy that focuses on stocks that are underappreciated by investors and the market at large or it can occur due to market mayhem in which these stocks lose their value due to fear among the investors though the company fundamentals are the same. Investors who use the value investing strategy hope the stock price will rise as more people come to appreciate the true intrinsic value of the company’s fundamental business.

Let’s take an example, recent inflation figures across the globe have created a huge fear among the regulators and due to this US and then India did a rate hike to control the inflation in the economy. Now, rate hike resulted in huge FIIs sell off in the Indian stock market and were pouring money in the developed economy like the US. One of the companies which got affected by this sell off was Tata Steel Ltd. On 17th may 2022, the stock was trading at ₹1188.70 and after the inflation figures and back to back rate hikes resulted the stock to fall and as of today i.e., 29th june 2022 it is trading at ₹881.60 though the fundamentals of the company are intact. Even the Book Value of the company is above its market value i.e., ₹937. This is where the value investors buy the stock i.e., by taking the advantage of chaos in the market. There are many other companies like: Hindalco Industries Ltd, Indiabulls Housing Finance Ltd etc are some of the examples which can be considered for value stocks.

So, if you think you have missed the downturn in the market, you don’t have to worry because chaos will keep happening every now and then, just do proper research and due diligence before investing in value stocks.

Disclaimer: We don’t give buy/sell or hold advice and the above example given is not investment advice rather just for educational purposes, please do your own research and due diligence or consult your investment advisor before investing in them.

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