Vinay has authored an insightful note that suggests that the tide is turning in the market finally, back in favour of high quality –high growth stocks, after a 3.5 yr phase of value’s outperformance.
He characterizes value’s recent outperformance as more of a longer term catch up after a dismal decade of 2010-2020 where value stocks seriously underperformed. They have had their mean-reverting rally since 2021while quality went quiet, digesting the valuation excesses of the last decade.
Quality/growth has now become value – in the sense of trading below their intrinsic value.
Vinay says in the long run, stock prices have always been slave to earnings. High growth/high quality companies consistently grow faster which allows the market to give them higher PE multiples. Over the long run, high quality, high growth stocks outperform two-thirds of the time.
Vinay acknowledges that for open-ended mutual funds, it does make sense to have a little more flexibility in accommodating different styles as some investors may not have the patience to wait through couple of years of style underperformance.
He is guiding PGIM India’s equity portfolios into a core and satellite framework where the core will remain high quality – high growth stocks which the fund house has always focused on while the satellite can include good businesses whose stocks are more aligned with the style currently in vogue at any point of time in the market.