VALUE INVESTING vs. GROWTH INVESTING

By

TAMAL DATTA CHAUDHURI

                                                Principal & Professor, Finance and Economics

Value Investing and Growth Investing are terms used in the stock market for identifying stocks for investment purposes. There are quite a few ways one may define value investing. The first is where the ratio of Market Price to Book Value per share is less than one. That is, the stock’s intrinsic value has not been fully realized in the market. The second is where the excess return from a stock is greater than the value given by the Stock Market Line. Growth investing on the other hand is forward looking and identifies stocks which may be highly priced today, but the prospects for further growth are there. These are stocks whose ratios of Price to Earnings per Share are high, and much higher than value stocks. In the table below we list some value stocks and some growth stocks as per the above criteria.

Name of the company	Price/Book Value per Share	P/E ratio	Price movement in the last two months (Rs.)
State Bank of India	1.19	8.64	1557-1718 = 161
Larsen & Toubro	3.47	18.19	746-965     = 219
Reliance Industries Ltd.	1.87	13.05	822-884   = 62
Tata Consultancy Services	12.47	27.65	1842-2008 = 166
ICICI Bank	1.77	12.85	802-1020  = 218
ITC	12.08	34.94	297-342  = 45
Hindustan Unilever Ltd	48.04	36.88	595-609  = 14

In the last two months, both sets of stocks have experienced appreciation in price. However, ones with already high Price to Book Value has seen smaller gains. One should take into account sectoral perception also and the effects of other macroeconomic variables. TCS with high P/E ratio and price to book value has seen significant rise as exchange rate movement aided growth in its bottom line. There is room for further appreciation in price for SBI.