Value Investing Cyclicality: From Neglect to Outperformance
The Market’s Amnesia
Value investing has often been overlooked. In the 2010s, when growth stocks were powering markets, many believed value had lost its relevance. During the COVID-19 crash, it slipped further into the background as factors like quality and momentum took the spotlight. But markets have short memories. Times of deep pessimism offer some of the clearest lessons from value investing during a crisis: when sentiment is at its lowest, the seeds of recovery are already being planted.
Why does this happen?
Value investing often swings like a pendulum, moving back and forth with the rhythm of different market cycles.. In euphoric bull runs, it lags behind while growth and momentum dominate. In sharp downturns, it can struggle even more, making investors believe that it has stopped working. When markets bounce back, value often surprises by leading the way. History shows that patience in investing always pays off. By recognising that the value and the broader market move in cycles, investors can see why value outperforms after downturns, often delivering returns when confidence is at its lowest.
The Cycle of Neglect and Redemption: Neglect in Bull Markets
When optimism is high, investors tend to chase growth and momentum-driven stocks. Value stocks may still rise, but they lag behind the market favourites. This shift in attention makes value look overlooked, even though its fundamentals remain intact.
| Index/Model | Pre Global Financial Crisis | Pre COVID-19 |
| Nifty 500 TRI | 231.64% | 8.64% |
| Nifty 500 Value 50 TRI | 218.89% | -15.78% |
| NJ Traditional Value Model | 164.22% | -13.33% |
| NJ Enhanced Value Model | 155.70% | -0.06% |
Source: CMIE, Internal Research, NJ’s Smart Beta Platform (in-house proprietary model of NJAMC), and NSE. Calculations of Pre-GFC are for the period 29th April 2005 to 31st December 2007, and Pre-COVID-19 is for the period 1st January 2019 to 31st December 2019. NJ Traditional Value Model and NJ Enhanced Value Model are in-house proprietary methodologies developed by NJ Asset Management Private Limited. The methodologies will keep evolving with new insights based on the ongoing research and will be updated accordingly from time to time. Past performance may or may not be sustained in future and is not an indication of future return.
Crisis in Market Downturns
Market downturns put all investment styles to the test, including value. During these periods, confidence in value often fades quickly, leading many to believe it has stopped working. Yet history shows that these very corrections often plant the seeds for value’s strongest phases of outperformance.
| Index/Model | During Global Financial Crisis | During COVID-19 |
| Nifty 500 TRI | -56.67% | -36.67% |
| Nifty 500 Value 50 TRI | -62.36% | -42.12% |
| NJ Traditional Value Model | -65.45% | -43.50% |
| NJ Enhanced Value Model | -63.16% | -39.28% |
Source: CMIE, Internal Research, NJ’s Smart Beta Platform (in-house proprietary model of NJAMC), and NSE. Calculations during GFC are for the period 1st January 2008 to 31st March 2009, and during the COVID-19 is for the period 1st January 2020 to 23rd March 2020. NJ Traditional Value Model and NJ Enhanced Value Model are in-house proprietary methodologies developed by NJ Asset Management Private Limited. The methodologies will keep evolving with new insights based on the ongoing research and will be updated accordingly from time to time. Past performance may or may not be sustained in future and is not an indication of future return.
Outperformance in Recoveries
Once the stability returns in the market, value has a habit of bouncing back. Decades of research, including the well-known study by Fama and French (1992), show that value outperformance is not a coincidence but a recurring feature of market cycles.
| Index/Model | Post Global Financial Crisis | Post COVID-19 |
|---|---|---|
| Nifty 500 TRI | 116.72% | 139.79% |
| Nifty 500 Value 50 TRI | 212.25% | 180.62% |
| NJ Traditional Value Model | 250.88% | 217.70% |
| NJ Enhanced Value Model | 196.78% | 202.92% |
Source: CMIE, Internal Research, NJ’s Smart Beta Platform (in-house proprietary model of NJAMC) and NSE. Calculations of Post GFC are for the period 1st April 2009 to 31st December 2010, and Post Covid-19 is for the period 24th March 2020 to 31st December 2021. NJ Traditional Value Model and NJ Enhanced Value Model are in-house proprietary methodologies developed by NJ Asset Management Private Limited. The methodologies will keep evolving with new insights based on the ongoing research and will be updated accordingly from time to time. Past performance may or may not be sustained in future and is not an indication of future return.
The cycle of neglect, downturn, and recovery is central to value factor investing and explains how it behaves differently from the broader market.
History shows value investing’s cyclical pattern:
Global Financial Crisis (2008–2010): Value fell harder but rebounded the strongest.
COVID-19 Pandemic (2020–2021): Value trailed early, dropped, then surged back.
A Closer Look at Value Factor & Interest Rates:
Value Factor focuses on companies that are priced fairly for what they actually earn. When interest rates go up, these value stocks tend to do better because they focus on today’s earnings, not some far-off growth story. In a high-rate market, people usually want stability, and that’s exactly where the value factor shines.
When interest rates fall, borrowing gets cheaper, and other factors perform well. Value stocks will benefit, but not always. Watching how the value factor moves with interest rates can help investors make smarter choices and position their portfolios for whatever comes next.
| Index/Model | Falling Rate Period | Rising Rate Period |
| Nifty 500 TRI | -13.10% | 2.18% |
| Nifty 500 Value 50 TRI | -34.63% | 8.42% |
| NJ Traditional Value Model | -33.41% | 5.02% |
| NJ Enhanced Value Model | -20.79% | -3.86% |
Source: Bloomberg, CMIE, Internal Research, NJ’s Smart Beta Platform (in-house proprietary model of NJAMC), and NSE. Rates refer to Repo rates. Calculations of Falling Rate Period is for the period 07th February 2019 to 31st May 2020 and Rising Rate Period is for the period 4th May 2022 to 31st March 2023. NJ Traditional Value Model and NJ Enhanced Value Model is an in-house proprietary methodologies developed by NJ Asset Management Private Limited. The methodologies will keep evolving with new insights based on the ongoing research and will be updated accordingly from time to time. Past performance may or may not be sustained in the future and is not an indication of future return.
Rate Cut Cycle (2019–2020): Falling interest rates led to a higher fall in value stocks.
Rate Hike Cycle (2022–2023): Inflation & higher rates lifted value-heavy sectors like banks, energy, and industrials.
What Drives This Cyclicality?
The story of the value factor is really a story of cycles. What makes it swing back and forth? Three familiar forces.
Economic: Rising rates and inflation make value look attractive. Low rates and tech-led booms keep growth in the spotlight.
Behavioral: Investors often chase what’s working, which is usually growth. But over time, the market balances itself, and value comes back into view.
Structural: The way indices are built also plays an important role. Value is made up of established businesses with steady cash flows, while growth leans more towardtechnology and consumer companies. This difference drives the natural rotation we see in markets.
Why It Matters for Investors:
Patience pays: Value factor doesn’t play out in days or months; it works in long market cycles. Sometimes it feels left behind, but when the cycle shifts, it often finds its place again. Stepping away too early can mean missing the point where the recovery starts to show.
Diversification helps:
Relying on just one approach can leave a portfolio exposed. Blending different styles through diversification spreads the risk and adds balance. It’s what gives a portfolio the resilience to handle ups and downs across different phases of the market.
Signals to notice:
The market has its way of sending signals. When cheaper stocks are left too far behind while expensive ones keep climbing, or when interest rates begin to rise, it can hint that change is on the way. These signs aren’t guarantees, but they remind us that cycles turn and that patience is a key part of successful factor investing.
Conclusion: From Neglect to Outperformance
The future of value investing will not be a straight path; it will move in cycles, shaped by style rotation, changing interest rates, and investor behaviour. For investors, the lesson is clear: patience and balance never go out of style. Value’s role in a portfolio is less about perfect timing and more about being prepared when the cycle turns.
Markets don’t move in straight lines, and neither does value. But both reward those who stay invested, because in the end, time in the market matters far more than timing the market.
FAQs:
1) Why does value investing sometimes fall behind?
Because markets move in phases. In good times, investors often get drawn to growth stories and trends, and value feels ignored. But when conditions change, value usually finds its place again.
2) Has value investing bounced back after tough times?
Yes, many times. After the Global Financial Crisis, during the Covid-19 recovery, and even in the recent period of rising interest rates, value reappeared in the conversation. History shows it has a way of returning when patience is tested the most.
3) What’s the most important lesson for investors about value cycles?
That value investing is about time, not timing. Staying patient and keeping a diversified portfolio helps investors benefit when the cycle shifts and value comes back into focus
Investors are requested to take advice from their financial/ tax advisor before making an investment decision.
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