BFSI Insight Summit 2026: 'Value investing works; stock selection key'

Fund managers at the Business Standard BFSI Insight Summit 2026 stressed selective stock-picking, reasonable valuations and business fundamentals amid divergent market trends.

Value investing has not lost its relevance in Indian markets, but identifying such stocks has become difficult because of divergent valuations across companies and market segments, fund managers said on Wednesday.

 

Speaking at the Business Standard BFSI Insight Summit were Rajeev Thakkar, chief investment officer (CIO), equity, and director at PPFAS Asset Management; Prashant Jain, founder and CIO of 3P Investment Managers; and Lakshmi Iyer, group president- investments, and managing director (MD) & chief executive officer (CEO) of Bajaj Alts (Bajaj Alternate Investment Management).

 

According to them, investment decisions must be guided by business fundamentals, valuations and the ability to distinguish temporary setbacks from structural weaknesses.

 

 

“Leave aside labels for a minute. Leave aside value investing. Let’s only talk about investing,” Thakkar said, arguing that the underlying principle remains the same whether a strategy is classified as value or growth.

 

Investing, he said, involves estimating a company’s intrinsic value and comparing it with its market price. Even investors pursuing high-growth businesses are essentially betting that the companies are worth more than what the market is currently pricing them at.

 

“When we invested in US tech stocks, we could value them conventionally, figure out what the intrinsic value is, and we felt that the market was not pricing them properly,” Thakkar said.

 

Iyer said the principles of value investing extend beyond equities to fixed income and other asset classes. “For a fund manager managing a hybrid portfolio, the question is where the next incremental return is likely to come from and whether equities or fixed income offer the more attractive opportunity at a given point in the market cycle,” she said.

 

The distinction between value and growth investing often lies in the assumptions used to arrive at intrinsic value. Growth investors tend to assign greater weight to cash flows expected far into the future, while value investors generally prefer greater visibility on near-term cash flows to reduce the risk of valuation errors.

 

Thakkar cited the experience of Infosys between March 2000 and March 2008, when the company’s profits grew seven to eight times but its stock price went nowhere.

 

Strong business growth, therefore, does not necessarily translate into attractive investment returns if the price paid for that growth is too high.

 

Jain said investors need a deeper understanding of businesses and market cycles to remain committed to an investment through periods of underperformance.

 

He referred to his long-standing conviction in public sector banks (PSBs), where concerns about asset quality had weighed on investor sentiment.

 

A closer examination of the data suggested that the stress was cyclical and affected corporate banks more broadly, rather than representing a permanent weakness confined to PSBs.

 

Banks with strong liability franchises offered greater business sustainability, he said. Recognising that the asset-quality cycle could turn helped him identify deep value and maintain his position despite periods of pain.

 

“Markets can remain irrational for a long period,” Jain said, explaining why investors need to distinguish between temporary market pessimism and a genuine deterioration in a company’s fundamentals.

 

Jain said an investment that fails to perform as expected should prompt a deeper examination of the underlying business.

 

However, conviction must rest on a sound understanding of the business: Staying invested when the underlying assessment is wrong can cause permanent damage to a portfolio.

 

Jain also recalled his decision to exit Indian technology stocks around the dot-com boom, when he believed the sector’s exceptionally high growth rates were unsustainable.

 

He does not, however, question the long-term relevance of the sector. Indian IT companies continue to 

 

report positive dollar-revenue growth, he said, although the challenge is to value these businesses appropriately as growth moderates.

 

Valuations across IT services companies vary considerably because businesses within the same industry have different products and growth prospects.

 

The sector’s future, therefore, cannot be assessed through a single valuation yardstick.

 

Among the various market capitalisation segments, according to Thakkar, largecap stocks were trading at lower valuations on average than midcap and smallcap stocks.

 

He also pointed to the flow of domestic money into midcap and smallcap mutual fund categories even as largecap funds had seen outflows in some months.

 

Investors, he said, appeared to have become overly concentrated in smaller stocks. The top 100 companies account for an estimated 65-70 per cent of the profits generated by India’s top-500 listed companies. This makes it important not to overlook larger businesses simply because their stocks have underperformed.

 

Thakkar compared the market’s preference for smaller companies to investors choosing desserts and accompaniments while neglecting the staple food of a portfolio. The analogy highlighted his view that largecap businesses continue to play an important role even when other segments attract greater investor interest.

 

Jain agreed that the relative performance of different market segments could change over time. However, he cautioned against treating all small and midcap companies alike.

 

“There is value, there is sustainability, there is growth in largecaps, and they should not be ignored,” he said.

 

Smaller companies can also offer stock-picking opportunities, but investors need to be selective and conduct focused research. Jain said there could be attractive businesses in the small and midcap universe that are not represented in the largecap space. The challenge is to identify those with sound fundamentals, sustainable growth and valuations that justify the investment.

 

Jain identified private sector banks, select pharmaceutical companies, IT services and certain utilities as areas where he sees opportunities. He said he had taken a small contrarian position in IT services amid widespread negative sentiment towards the sector.

 

Iyer advocated a balanced approach rather than an outright shift away from either segment.

 

Investors should look beyond index movements and market narratives to identify companies with sound fundamentals and reasonable valuations.

 

She said opportunities could exist beyond the stocks that dominate benchmark indices, provided investors are willing to look for them. Her approach is to maintain exposure to different opportunities while selectively exiting stocks where valuations or fundamentals no longer justify the investment.

 

AI valuations call for selectivity

 

Discussion on technology also turned to artificial intelligence (AI), where enthu­siasm over the sector’s growth potential raised questions about valuations and the sustainability of investment.

 

Jain said the AI opportunities needed to be viewed in the context of the differences between India and the US.

 

While a large share of US spending has gone into foundational infrastructu­re and the development of large langua­ge models, Indian AI activity has been more concentrated on applications.

 

He argued that the two markets should not automatically be judged by the same yardstick. The scale and nature of investment, the funding model and the businesses being built all matter when assessing whether valuations are sustainable.

 

Iyer said investors evaluating emerging technology businesses must examine how and when they expect to become profitable. The path to profitability and the strategy for achieving it are important considerations before capital is committed, particularly when a business is yet to generate profits.

 

She also cautioned against equating a lower stock price with value. Investors must establish whether a correction reflects a temporary setback or a lasting deterioration in the business.

 

“Everything that is at a discount need not necessarily offer value,” Iyer said, drawing a distinction between cheaper price and an attractive investment opportunity.