Fund houses eye low-value stocks to maximise gain

Fund houses have started unearthing low-value scrips that have gone unnoticed by researchers, thanks to the spike in the stock market.

For example, Morgan Stanley, a relatively new entrant in the Portfolio Management Services (PMS) space, has tweaked its strategy in favour of stocks which did not rise due to sector-related biases and lack of research.

“We believe that there are a few stocks whose prices have corrected recently, but have not participated in the market rally due to sector-related reasons or a lack of focused research. Our current strategy for the broader markets is to ‘buy on dips’ fundamentally sound stocks with strong business proposition and leadership. These stocks have significantly underperformed, but they make attractive opportunities in the current market, which can be tapped through PMS,” said Amitava Neogi, executive director, Morgan Stanley.

According to Neogi, there are ample number of stocks available at a discount in sectors like auto ancillary, consumer discretionary, infrastructure and real estate.

Not only Morgan Stanley, even Sahara Mutual Fund has recently launched a fund called Star Value Fund. This fund has been conceptualised to invest only in value stocks, or stocks priced low compared to key parameters such as earnings and cash flows.

“The fund will follow the ‘value investment’ strategy to invest in companies whose stocks are available at a discount. Expecting the market to discover the error, there will be buying in these stocks which will push up their prices to ‘where they belong’... While the downside risk of such investment is low, the upside potential is high,” said Naresh Garg, chief executive officer, Sahara Mutual Fund.

In the present market conditions, even several large-cap stocks were available at discounts. Such stocks constituted as much as 60 per cent of the model portfolio of the Star Value Fund, added Garg.

“At this juncture, we believe that stocks that have underperformed can offer attractive opportunities. We believe that the large-cap index is more than fairly valued at this point in time,” said Prateek Agrawal, equity head of Bharti AXA Investment Managers.