The MSCI India Growth Index ended February with gains of 19.9 per cent on a rolling 12-month basis, compared to 12.6 per cent for the MSCI India Value Index. If it holds, the lead for the financial year ending March 2026 (FY26) will be wider than seen in FY25. The MSCI India Value Index return was 1.9 per cent for the 12 months ending March 2025, compared to 6.4 per cent for the MSCI India Growth Index over the same period.
The government’s updated methodology estimates gross domestic product (GDP) growth at 7.6 per cent for FY26, outpacing the 7.4 per cent projected under the previous calculation.
What explains the outperformance of growth stocks?
Broadly, a growth strategy in stock markets targets companies with the potential to expand their business faster than average, operating on the premise that these gains will translate into higher returns even if valuations are high. A value strategy buys stocks trading at relatively inexpensive valuations — for example, a company trading at less than the value of its assets — though some investors also argue the divide is not necessarily binary. Value narrowly outperformed growth in the past two months but it has largely been an underperformer since 2023, according to a Business Standard analysis. It looked at returns on a rolling 12-month basis to get a clearer idea of gains irrespective of starting and ending points.
Why are market experts advising caution?
Market experts advise caution
Amnish Aggarwal, director of research (institutional equities) at PL Capital, said that this may not be a juncture at which growth will outperform at any cost. Companies which exhibit high potential and are available at reasonable valuations will likely do better, even as growth may continue to do well as a theme overall.
“Market loves growth,” he said.
How could geopolitical tensions affect markets?
Geopolitical factors may play a role in the days ahead. The US and Israel are at war with Iran, pushing up oil prices and putting West Asia in turmoil. India imports more than 85 per cent of its crude oil requirements and higher prices may affect the economy. War also discourages foreign investor risk appetite and can impact flows. Foreign portfolio investors in Indian markets have been net sellers by nearly Rs 70,000 crore in FY26.
“In times of global risk aversion, value tends to do better,” said Nilesh Shetty, portfolio manager at Quantum Advisors, a value-focused investment manager. Indian markets slipped around 1 per cent in their initial reaction after the attacks on Iran on February 28, suggesting that the conflict was not expected to be prolonged. There could be significant downside if events turn out otherwise, according to Shetty. Several growth stocks, including platform companies, are trading at attractive valuations. Further market corrections could lead to more buying opportunities, said Shetty, who is sitting on 7 per cent cash in a $2-billion portfolio.