Let’s get to understand the fundamentals of value investing before jumping the gun as to whether it works in the Indian stock market or not. The premise of value investing is to identify undervalued companies that can grow in the future.
As a value investor, you should identify such companies before other investors realize those companies’ true potential. This process takes time, and the company’s share price also takes years to multiply from its current levels.
However, most investors want to become Warren Buffett as early as possible without realizing that Mr. Buffett accumulated more than 90% of his wealth after he turned 50. Not to forget, he made his first investment at the tender age of 11. To succeed in the world of investing, always remember this saying “Rome wasn’t built in a day.”
Yes, value investing does work in India and works in other parts of the world. The key here is to identify those fundamentally sound companies that have the potential to deliver high returns over time. Just to give you a testimony, the Big Bull Rakesh Jhunjhunwala, the ace Indian investor, bought Titan back in 2002 at an average price of Rs. 3. The current stock price is Rs. 1730 as of closing on 14 June 2021.
This was just one example; many such examples of stocks that, if bought during their IPO or in their early stages, have made fortunes for their investors. Infosys listed at Rs. 95 per share in 1993, a Rs. 10,000 investment back then has grown to Rs. 7.2 crores in 2015 with Rs. 18 lakhs just in dividend. The key is to find undervalued companies with great potential today who will be Infosys’s and Titan’s of tomorrow.
To find out, start with a top‐down approach, first identify the sectors/industries (IT, Banking, Auto, NBFC, Pharma) that will rule in the next decade. Now look for listed companies in this sector with a consistent track record when it comes to growth in revenue and profit. Also, check what distinguishes these companies from their peers and check for their management profile. Then you’re good to invest in them!
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