Buying quality stocks in challenging times is a winning long-term strategy

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Subscribe to enjoy similar stories. In a market environment where only 35% of portfolio management services (PMS) strategies have outperformed the broader indices, a disciplined approach on the part of PMS funds continues to deliver exceptional value for investors. Q2FY25 was a reset quarter for the market.

FIIs were selling due to higher valuations and concerns about earnings growth, which was in single digits and not broad-based as it was in calendar year 2023. Investors are now being selective, so companies that deliver high growth will start outperforming value or momentum stocks. The next three years will likely be positive for a focused, bottom-up, growth-oriented style of investment.

Also read: Why banks flag business expenses paid on personal credit cards Below is a brief note about the quality vs value debate. It includes a data point that shows clearly how quality has dominated value over the long term. Quality-focused growth-oriented fund houses – which focus not just on growth but quality and duration of growth, the total addressable market, and the moat and self-sufficiency of the business – have outperformed value and momentum stocks, especially over long periods of time.

If one were to slice the data from the reasonably long history of benchmark indices and juxtapose them with their parent broad-based indices, some very interesting points emerge. This doesn’t just show the smoothness of returns over a longer period but also that quality is a vastly superior tool in the mid- and small-cap segments. A deeper analysis of these figures indicates that astute stock selection plays a crucial role in delivering performance, owing to the incidence of extremely sharp drawdowns, especially in the case of value