How to be a value investor when Nifty is at 26,000, Sensex at 85,000: Guide to finding value when the market looks pricey
When the Nifty hovers around 26,000 and the Sensex sits near 85,000, investors naturally wonder: Is there any juice left in the market? The answer is an unequivocal yes. Expensive markets are not uniformly expensive. Even near record highs, pockets of value quietly exist for investors who are willing to look past the noise and choose patience as their strategy.Value investing is not about chasing the latest momentum darling. It is about spotting fundamentally sound businesses that the market has temporarily ignored or punished. It requires temperament, not trend-following. Think of it as gardening: you plant when sentiment is dry, nurture your picks, and wait for the cycle to turn.History is full of reminders that value emerges when others are distracted. Midcap and small-cap stocks had surged to expensive valuations in October 2024, before profit taking brought them down to saner levels by the end of the year. Then a warning from Sankaran Naren, CIO of ICICI Prudential Mutual Fund, triggered an alarm in the markets.By March 2025, the BSE Midcap had slipped below 39,000 and the BSE Small Cap below 43000. Within those aggregates were dozens of companies that were fairly priced and not overvalued. But just as a rising tide lifts all boats, a surging tsunami destroys everything it touches. Even good stocks were beaten down, even as the broader indices fell 25% from their October 2024 peak.That was a wonderful opportunity for value investors. As Nathan Rothschild’s once said, “Buy when there’s blood in the streets.” Investors who stepped in during that massacre have pocketed rich rewards. Both the BSE Midcap and the BSE Smallcap have shot up 20% since their March lows.Value investors typically operate in two environments. There are absolute value phases, when there are sudden, fear-driven wipeouts. For instance, in March 2020, the Covid shock sent markets tumbling. At times like that, valuations detach from fundamentals, and quality stocks get thrown out with the junk. These moments don’t come often, but they are the closest thing to a bumper discount sale for a value investor.Then there are relative value periods, when the markets move sideways. Though the indices are stable, several stocks remain stuck in the doldrums. These are ideal hunting grounds. The challenge is to find companies priced well below their intrinsic worth. These are businesses whose long-term earning power is higher than what current prices imply.Valuation ratios like price-to-earnings (PE) and price-to-book (PBV) are good starting points but not always the best way to judge a stock. A stock may appear cheap simply because its growth engine is stalling. Earnings alone are not important. What is more important is the quality of the earnings.Companies often show inflated profits due to a one-off asset sale, divestment or windfall gains. That boosts the EPS but not the business. Sustainable value comes only from operations, not accounting fireworks. Always check whether operating margins are robust and consistent.Margin of safety is the cornerstone of value investing. It is the gap between a stock’s intrinsic value and its market price. The wider this gap, the lower your downside risk and the higher your probability of outsized returns.For example, if a company’s fair value is Rs 400 but trades at Rs 350, you already have a 12.5% buffer. If it corrects further to Rs 320, your margin of safety expands to 20%. For long-term investors, such declines are less of a threat and more of an opportunity. Market pessimism is often the discount coupon for future wealth creation.Bull markets distort perception. When frothy stocks trade at triple-digit PEs, even a PE of 35 can look like a bargain in comparison. But relativity is a trap. Overvaluation is overvaluation, regardless of what your peer group looks like. Never buy an expensive stock simply because another one is even more overpriced.To separate true value from low-quality cheapness, investors must dig deeper into profitability metrics. Return on Equity (RoE) helps measure how efficiently a company uses shareholder capital. Return on Capital Employed (RoCE) assesses overall capital productivity, especially crucial in capital-heavy industries like infrastructure, engineering, or manufacturing. A consistent RoE or RoCE above 10% signals that management is deploying capital wisely. In value investing, good businesses matter as much as good prices.Dividend payout is often overlooked but invaluable. Companies that share profits regularly demonstrate financial discipline and cash-flow strength. A decent dividend yield not only cushions returns during volatile periods but also discourages sharp price declines. ITC is a textbook example—its steady payouts have anchored its stock price through multiple market storms. Dividend-paying companies typically have mature business models, predictable earnings, and conservative capital allocation. These are traits a value investor should love.Value investing is part maths, part mindset. The maths helps you estimate fair value; the mindset helps you stay calm while the market decides what it wants to fret over next. At 26,000 Nifty or 85,000 Sensex, the discipline remains the same: buy businesses you understand, insist on a margin of safety, demand quality earnings, and give time the respect it deserves. Patience, not predictions, is what turns value investing into wealth building.
