Value Factor Measured

The success of these measures has waned somewhat over time, not because

of any inherent conceptual infirmity, but because of the inability of value definitions to keep pace with increasingly complex corporate and market structures. In addition, with relative growth playing an increasingly important role in determining stock prices, the part of Mr Graham’s equation that isn’t mathematically quantifiable has become more dominant over recent years.

In India as well, value factor performance has lagged behind the rest of the market for more than a decade now, with some resurgence visible in 2020 and 2021. Apart from the challenges faced internationally, India has its own unique challenges that make a simple implementation of value difficult to succeed. Predominant among these is the existence of perpetual value companies in the public and private sector, the stock prices of which have stagnated despite attractive valuations. These value traps typically occupy the highest end of most value definitions and have a devastating impact on the performance of value as a factor in India.

Nevertheless, the value factor has low correlations1 with momentum and other factors, and can offer potential diversification benefits especially at times of factor cyclicality.

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