Relevance Of Rule-Based Value Investing In Today's Markets

The stock market, for many investors, can appear overwhelming. With over thousands of listed companies in India and constant market noise, identifying the right stocks is not an easy task.

As Indian markets deepen and passive investing gains traction, factors such as quality, value and momentum are increasingly becoming popular among investors looking for rule-based exposure to equity markets.

One such index based on the value factor is the Nifty 200 Value 30. Strategies tracking this index have become an effective choice for investors who wish to adopt value-oriented rule-based investing.

What's Nifty 200 Value 30 Index?

The Nifty 200 Value 30 Index is designed to track the performance of companies that display relatively attractive valuations within the broader market. The index consists of the 30 stocks from the Nifty 200 universe based on the following factors:

Price-to-earnings ratio

Price-to-book ratio

Dividend yield

Sales to price

The Nifty 200 Value 30 Index aims to select stocks that display undervalued characteristics compared to their financial performance.

For investors, this approach offers multiple advantages. It reduces the behavioral biases that may arise from human judgement. It also provides exposure to companies that may be temporarily undervalued by the market, despite having sound fundamentals.

The index is also periodically reviewed and rebalanced to ensure that the constituents continue to reflect value characteristics.

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Understanding Value Investing

Value investing has been one of the widely discussed and studied investment strategies in equity markets. It gained prominence through the work of globally recognized investors such as Benjamin Graham and Warren Buffett.

The core idea is straightforward: buy good companies when they are available at reasonable or discounted prices.

Markets often move in cycles. At times, high-growth stocks dominate headlines, while at others, investors rediscover companies with strong balance sheets and stable cash flows. Value-oriented strategies attempt to capture these opportunities.

The Nifty 200 Value 30 index operationalises this philosophy through a rule-based framework. The index methodology screens the Nifty 200 universe and identifies comapnies that score higher on the value parameters.

How ETFs. Index Funds Track The Strategy

Investors can invest in the index through two ways:

Exchange Traded Funds (ETFs): ETFs are traded on the stock exchange similar to stocks. Investors can buy and sell these ETFs through their demat accounts. ETFs have the reputation of offering transparency and low expense ratios.

Index Funds: Index funds follow the benchmark but are more similar to traditional mutual fund investments. Investors can invest in these funds without the need to trade on the stock exchange.

Both of these funds allow investors to invest in the stocks that the index holds.

Why Investors Paying Attention

The Nifty 200 Value 30 ETF or index fund attracts investors because it provides the opportunity for diversification, discipline, and cost efficiency.

Firstly, the index is based on the Nifty 200 universe, which represents large-cap and mid-cap companies from various sectors. This is a broader representation of the stock market and still maintains its focus on a select group of 30 stocks.

Secondly, historically, the value factor has shown promising returns over long-term investments, especially during times when the market sentiment is positive towards companies that are fundamentally strong and have reasonable valuations.

Thirdly, ETFs and index funds are typically associated with lower expense ratios and may contribute positively to long-term wealth creation.

Role In Long-Term Portfolio

For a long-term investor, a strategy such as the Nifty 200 Value 30 index may act as an additional layer to a diversified portfolio. This is likely to help investors participate across different market cycles through a combination of equity investments and factor-based investing strategies such as value investing.

The Bottom Line

While simplicity is often an underrated attribute in today's complex financial world, investing in products based on the Nifty 200 Value 30 index offers a structured approach to equity investing, based on companies that are fundamentally strong from a valuation perspective.

For investors navigating the growing world of passive investing, such strategies provide a transparent route to equity participation. While no investment approach guarantees outcomes, combining diversification, long-term thinking, and rule-based investing can help investors stay focused on what ultimately matters most: building wealth steadily over time.

The article has been authored by Chintan Haria, principal-investment strategy at ICICI Prudential AMC.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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